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Number of 'marginal firms' jumps nearly 24 pct in 2 years

Finance 08:31 September 13, 2022

SEOUL, Sept. 13 (Yonhap) -- The number of South Korean firms unable to service their debts with earnings soared nearly 24 percent in 2021 from two years earlier amid the prolonged coronavirus outbreak, a report showed Tuesday.

Asia's fourth-largest economy had 2,823 "marginal companies" last year, up 23.7 percent from 2019 before the COVID-19 outbreak in the country, according to the report by the Korea Economic Research Institute (KERI).

Marginal companies refer to corporations whose interest coverage ratio hovers below 1.

The interest coverage ratio is calculated by dividing a company's operating profit by its interest expenses. A ratio of less than 1 means the company's operating profit does not cover its interest expenses.

Corporate headquarters in downtown Seoul (Yonhap)

Corporate headquarters in downtown Seoul (Yonhap)

The report is based on an analysis of 22,388 non-financial companies that are subject to the country's external audit law.

The report also showed those marginal companies having a combined workforce of 314,000 in 2021, up 26.7 percent from two years earlier.

A total of 449 large and midsized firms were marginal last year, up 15.4 percent from 2019, with the number of small marginal firms spiking 25.4 percent to 1,891 over the cited period.

By industry, manufacturing corporations made up the largest portion at 1,141, or 40.4 percent of the total.

KERI said the government needs to take measures to speed up the restructuring of marginal firms, and that financially weak businesses should make active efforts to seek sustainable growth.

KERI is the research arm of the Federation of Korean Industries, or the lobby for family-controlled conglomerates called chaebol here.

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