Leaders Index Announces Interest Coverage Ratio Survey Results
Interest Coverage Ratio 1.16 in First Half of This Year
Operating Profit Declines and Interest Expenses Surge
Operating profits have declined and interest expenses have surged, causing the interest coverage ratio of major domestic companies to drop significantly. The interest coverage ratio is an indicator of a company's ability to pay interest with its operating profits.
On the 10th, Leaders Index, a corporate management analysis institute, surveyed the interest coverage ratios of 347 companies that submitted their business reports for the first half of this year among the top 500 companies by sales. The ratio was recorded at 1.16, down 3.26 points (74%) from 4.42 in the first half of last year.
During this period, the operating profits of these companies decreased by 41.7%, from 149.6752 trillion won to 89.3208 trillion won, while interest expenses increased by 121.6%, from 33.8807 trillion won to 75.0694 trillion won.
The interest coverage ratio is calculated by dividing a company's operating profit by its interest expenses. A ratio below 1 means the company cannot cover its interest expenses with profits generated from its operations. Typically, companies with an interest coverage ratio below 1 for three consecutive years are referred to as 'zombie companies,' indicating potential insolvency.
The number of companies with an interest coverage ratio below 1 increased more than twofold, from 47 in the first half of last year to 98 in the first half of this year. Thirty-seven companies had an interest coverage ratio below 0 for two consecutive years. These included Korea Electric Power Corporation (KEPCO), public power companies such as Korea Midland Power, Korea South-East Power, Korea Western Power, and Korea District Heating Corporation, as well as retail companies like Emart, Lotte Shopping, Hotel Lotte, and Kurly.
Among the surveyed companies, the highest interest coverage ratio was recorded by Korean Reinsurance Company (Korean Re) at 1810.2, followed by KEPCO KPS (666.5), Lotte Fine Chemical (364.6), BGF Retail (326.4), Samsung Fire & Marine Insurance (313.9), Daehan Steel (215.1), LX Semicon (187.6), and Hyundai Engineering (185.6).
Among 21 industries, only the shipbuilding and machinery equipment sector saw an increase in interest coverage ratio, rising from 1.3 last year to 5.2, while the other 20 industries all experienced declines. Industries with high interest coverage ratios included pharmaceuticals (10.8), insurance (8.3), automobiles and parts (6.5), and telecommunications (5.3). In contrast, public enterprises (-2.5) and IT electronics (-0.45) recorded negative ratios.
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