The profitability and financial health of external audit-targeted construction firms have deteriorated for five consecutive years, with marginal companies now exceeding 11% of the total, indicating a structural downturn in the construction industry.
The Korea Construction Industry Institute reported on August 9 that an analysis of the management performance of 2,004 construction firms with available financial statements from 2021 to 2025 revealed this trend. External audit-targeted companies are those subject to external audits.
Marginal companies are defined as those with an interest coverage ratio below 1 for three consecutive years, meaning they cannot cover interest expenses with operating profits. The number of marginal companies increased from 62 (4.5%) in 2021 to 173 (11.3%) in 2025, marking a 2.8-fold increase over five years.
Overall profitability has also worsened. The operating profit margin dropped from 4.5% to 3.4%, while the net profit margin fell from 4.2% to 2.3%. The debt ratio rose from 129.2% to 155.3%, and the revenue growth rate declined from 17.9% to -4.5%.
The financial structure has deteriorated as well. The debt ratio soared from 129.2% in 2021 to 161.8% in 2024, before slightly decreasing to 155.3% in 2025, still higher than in 2021. The current ratio fell from 282.6% in 2021 to 232.3% in 2024, indicating reduced capacity to repay short-term debts.
Particularly notable is the decline in the building sector within the comprehensive construction industry. The net profit margin in the building sector plummeted from 5.0% in 2021 to 1.0% in 2025, while the debt ratio surged from 204.8% to 256.3%.
In contrast, the civil engineering sector saw a smaller decline in net profit margin, dropping from 4.3% to 3.5%, with the debt ratio increasing slightly from 97.5% to 106.7%. This disparity is attributed to adjustments in the housing and sales market, as well as risks associated with project financing and unsold properties concentrated in the building sector.
Regionally, vulnerabilities differed between the metropolitan and non-metropolitan areas. Non-metropolitan areas were relatively weaker in terms of profitability and the proportion of marginal companies. The share of marginal companies in non-metropolitan areas rose from 5.1% in 2021 to 12.9% in 2025, surpassing the 9.8% in the metropolitan area.
Conversely, the metropolitan area faced relatively higher liquidity burdens. The current ratio in the metropolitan area decreased from 244.9% in 2021 to 216.0% in 2025, lower than the 270.6% in non-metropolitan areas. The revenue growth rate in the metropolitan area also fell significantly from 19.2% in 2022 to -6.2% in 2025, indicating a larger adjustment compared to non-metropolitan areas.
Lee Ji-hye, a researcher at the Korea Construction Industry Institute, stated, "The poor performance of external audit-targeted construction firms reflects structural issues compounded by economic slowdown, rising construction costs, project financing risks, financial burdens, and delayed payments. It is particularly urgent for comprehensive construction firms to improve their financial structures and strengthen risk management."
* This article has been translated by AI.
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