Number of Major Companies Unable to Cover Interest with Operating Profit More Than Doubled in Three Years

Leaders Index Analyzes 302 Companies
Operating Profit Down 1%, Interest Expenses Soar 136%

Due to a decline in operating profit since the COVID-19 pandemic and rising interest rates, the number of companies unable to cover their interest expenses with operating profit has increased sharply.

On April 29, Leaders Index, a corporate analysis research institute, analyzed the sales, operating profit, and interest expenses of 302 companies that submitted business reports and were comparable over the three-year period from 2021 to 2024 among the top 500 companies by sales. The results showed this trend.

Last year, the total sales of these companies reached 2,964.697 trillion won, a 25.5% increase compared to 2,362.8248 trillion won in 2021. However, during this period, operating profit decreased by 1.2%, from 200.3075 trillion won to 197.942 trillion won, while interest expenses surged by 136.3%, from 22.982 trillion won to 54.2961 trillion won.

As a result, the interest coverage ratio?a financial soundness indicator that compares a company's operating profit to its interest expenses?fell from 8.72 to 3.65. Among the companies surveyed, 214 companies, or 70.9%, saw their interest coverage ratio decline over the past three years, while only 88 companies saw improvement.

In particular, the number of companies with an interest coverage ratio of 1 or less, meaning they cannot cover their interest expenses with operating profit, increased more than twofold over three years: 34 companies (11.3%) in 2021, 44 companies (14.6%) in 2022, 59 companies (19.5%) in 2023, and 73 companies (24.2%) in 2024. Among these, 20 companies recorded an interest coverage ratio of 1 or less for three consecutive years. This group included five Lotte Group companies?Lotte Shopping, Lotte Chemical, Hotel Lotte, Lotte Himart, and Korea Seven; three SK Group companies?SK On, SK Ecoplant, and SK Networks; and two Shinsegae Group companies?Emart and Shinsegae Construction.

Typically, if a company's interest coverage ratio remains below 1 for three years, it is referred to as a "zombie company," indicating a potentially insolvent business. By industry, most sectors except shipbuilding, public enterprises, and insurance saw their interest coverage ratios decline over the past three years. In particular, due to deteriorating business conditions last year, the average interest coverage ratio in the petrochemical and retail sectors fell to 0.64 and 0.99, respectively, both below 1.

The sector with the steepest decline in interest coverage ratio over the past three years was petrochemicals. Among 37 companies in this sector, the interest coverage ratio plummeted from 12.34 in 2021 to 0.64 in 2024. In petrochemicals, six companies?Lotte Chemical, Hyosung Chemical, ISU Chemical, Daehan Oil & Chemical, Taekwang Industrial, and Yeochun NCC?recorded an interest coverage ratio of 1 or less for three consecutive years.

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