Major Financial Indicators of Korean Construction Companies Deteriorate Over Past 5 Years... Proportion of Marginal Firms Up 2.5 Times

Analysis of Financial Statements from 2,004 Externally Audited Construction Firms

All major management indicators for leading construction companies in Korea—including profitability, financial health, growth, and activity metrics—have collectively declined over the past five years.

Workers are working at a construction site in downtown Seoul. Photo is unrelated to the article. Photo by Yonhap News Agency

The Korea Research Institute for Construction Policy (KICP) announced on August 9 the results of its analysis based on the financial statements of construction firms subject to external audit from 2021 to 2025. The survey targeted 1,099 general construction firms and 905 specialty contractors, excluding 33 companies suffering from capital erosion, out of 2,337 companies for which financial data was available during the period.

According to the analysis, the most pronounced decline was found in profitability indicators, which show how much companies actually earn. The operating margin dropped from 4.5% in 2021 to 3.4% in 2025, while the net profit margin fell from 4.2% to 2.3% over the same period. Return on Assets (ROA), reflecting profitability relative to assets, plunged from 5.2% to 3.6%, and Return on Equity (ROE) dropped sharply from 10.1% to 5.6%.

This deterioration in operating profit is attributed to several independent factors: the burden of construction costs driven by rising raw material and labor expenses; delays and cancellations at project sites; and increased concerns over real estate project financing (PF) defaults. Meanwhile, financial costs have continued to rise, further squeezing profits.

Financial stability has also noticeably worsened. The debt ratio soared from 129.2% in 2021 to 161.8% in 2024, then edged down to 155.3% in 2025, remaining at a persistently high level. The current ratio, which measures the ability to cover short-term liabilities, continuously declined from 282.6% in 2021 to 232.3% in 2024 before slightly rebounding to 238.3% last year, signaling ongoing warnings around cash liquidity.

The interest coverage ratio, which indicates whether a company’s operating profits are sufficient to cover interest expenses, rose from 8,733.0% in 2021 to 10,305.6% in 2022, but then steeply dropped to 4,166.1% in 2025. Of particular note, the proportion of so-called “marginal companies”—those with an interest coverage ratio below 1 for three consecutive years—soared from 4.5% (62 firms) in 2021 to 11.3% (173 firms) in 2025, more than doubling and underscoring the growing insolvency risk within the sector.

Growth indicators, which represent outward expansion, and activity metrics, which measure operational efficiency, also struggled. The revenue growth rate peaked at 17.9% in 2022 but fell sharply thereafter, recording -4.5% in 2025, indicating a return to negative growth. The total asset growth rate also slowed, from 14.8% in 2021 to 5.8% in 2025. Additionally, the total asset turnover ratio dropped from 149.1% in 2021 to 114.7% in 2025, and the construction receivables turnover ratio fell from the 900% range to the 800% range, reflecting an overall decline in cash collection and asset management efficiency.

This content was produced with the assistance of AI translation services.