Research Reports

Research Reports serve as the theoretical and academic foundation and are studies for the medium and long term policy measures of the construction industry.

A Study on the Management Performance and Marginal company of Construction External Audit Companies in 2020

Author Taejun Kim Pages - page
Date 2022-04-18 Series number -
Downloads

Research Title : A Study on the Management Performance and Marginal company of Construction External Audit Companies in 2020

 

▣ Author : Taejun Kim

 

Research Background and Purpose

• Marginal enterprises refer to insolvent enterprises that cannot even survive without external help, and the increase in marginal enterprises in the industry hinders the proper use of input factors such as tangible and human resources, resulting in a decrease in the competitiveness of the industry

• The construction industry is vulnerable to an economic crisis due to its high sensitivity to the external environment and has a large negative ripple effect such as chain bankruptcy and job loss, so it is important to understand the trend of marginal companies

• The significance of this study is that the detailed status of the construction industry was identified by analyzing the business performance by industry/size, and the trend and characteristics of marginal companies in the construction industry were analyzed to identify the insolvency

 

 

▣ Research Methodology & Period

• The research method combines literature research and quantitative analysis using corporate financial data

- Quantitative Analysis: An Analysis of Construction Companies' Management Performance Based on Financial Data of External Auditors in the Last 5 Years

- Literature Study: A Study on the Research Literature of Domestic and Foreign Limited Companies

• Research Period: 2021.07.01. ~ 2021.12.31.

 

Research Findings

• The number of external audit companies in the construction industry was 1,868 as of 2020, which remained on the rise from 1,751 in 2016 to 1,889 until 2019, but decreased slightly

- General construction companies (63.9%) and SMEs (82.3%) accounted for the majority, accounting for 2.4% of all registered construction companies

- The average sales of construction companies are 105 billion won, which is 131.3 billion won for the comprehensive construction business and 61.5 billion won for the professional construction industry

• The overall net profit ratio of the construction industry was 4.7%, with 5.2% for the comprehensive construction industry and 2.8% for the professional construction industry

- Within the comprehensive construction industry, the net profit ratio (7.2%) of the building construction industry is twice as high as that of the civil engineering construction industry (3.1%)

- Within the professional construction sector, the electricity and telecommunications business (4.1%) had the highest return, while the rest of the industries recorded a net return of around 2%

• Despite the continuous decline over the past five years, the average debt-to-equity ratio of construction companies recorded 140.1%, which is very high compared to the debt-to-equity ratio of the entire industry 86.1%

• The number of companies with an interest compensation ratio of less than 1 representing companies that are difficult to repay debts through normal business activities was 567 as of 2020, which is continuously increasing from 337 companies in 2016

• As of 2020, the number of marginal companies in the construction industry was 299 companies, an increase of 48.7% from 75, and comprehensive construction companies accounted for a large portion, with a significant increase (17.6%) in 2020

• As a result of examining the proportion of marginal companies (number of marginal companies / number of external companies within the industry) as of 2020, the proportion of marginal companies in total construction companies increased by 2.2%P from 10.6% in 2019

- As a result of analyzing the trend of marginal companies by size, 26 out of 229 large companies accounted for 11.4%, while 203 SMEs accounted for 88.6%

- According to the regional distribution of marginal companies, the proportion of non-metropolitan areas (14.7%) was higher than that of the metropolitan area (11.1%), and the growth rate of non-metropolitan areas (3.9%P) was higher than that of the metropolitan area (0.9%P)

 

Expectation

• Understanding the competition status of domestic construction companies

- Considering that the overall net profit ratio of the general construction industry has increased, but the average sales are falling, it can be seen that the polarization phenomenon is intensifying, especially in non-metropolitan areas/small and medium-sized enterprises

- In the professional construction industry, most companies recorded a debt-to-equity ratio of less than 100%, while the net profit ratio was only 2%, so the overall decrease in operating profit in the industry was believed to have affected the increase of marginal companies

• Monitoring the insolvency status of the construction industry and utilizing basic data for policy establishment

- Monitoring the phenomenon of increasing sales in the construction industry, but also increasing the scale of insolvency

- It can be used as basic data to understand the financial status of the construction industry in relation to the establishment of the construction industry policy

 

No Contents.