South Korean listed firms’ ability to cover their interest costs with earnings slipped in the third quarter of this year from a year ago due to lackluster performances, a report showed Monday.
The average interest coverage ratio of 612 firms listed on the local main bourse came to 5.11 times in the July-September period, compared with 6.01 times posted a year earlier, according to the report by the Korea Exchange and the Korea Listed Companies Association.
The ratio measures a firm’s operating profit divided by its interest costs incurred from borrowing and represents the company’s ability to cover its financial burden. A reading higher than 1 means a firm earns more than it has to pay in interest.
The report blamed the drop on the fact that operating profits declined at a far sharper rate than interest costs. Their interest costs dropped 1.83 percent due to lower interest rates, but earnings dropped 16.52 percent, it showed.
The combined interest cost of the tallied companies declined 194 billion won to 10.4 trillion won ($9.2 billion) in the cited period, and their operating profit fell 10.5 trillion won to 53.2 trillion won, the report said.
Listed firms that close their books in March and those who use the K-IFRS system, such as Samsung Electronics Co. and LG Electronics, were excluded from the tally.