What are Zombie Companies?

Zombie Companies are loosely referring to firms that are economically unviable and only treading above water(financially speaking) because of debt financing and capital markets.

Sounds familiar?! These zombie companies can be used to describe the many SPAC IPO bubble of 2018/19 that went bust in 2022. Wiping millions off investor’s capital value.

Can BlueChips stock turn into zombie firms?

Yes! Since the onset of the Covid pandemic, many of America’s iconic companies have turned into Zombie Firms. Companies like Boeing, Carnival and Delta Air Lines, and  Exxon Mobil aren’t earning enough to cover their interest expenses in 2020. ( Most of them as since recovered.)

In summary, zombie companies can be a result of an unfavorable business environment or flawed business models.

How to spot a Zombie company?

  1. Low Cash on the balance sheet
  2. A negative return on Equity
  3. Interest coverage ratio not well covered( less than 1 or negative)
  4. Net negative profits

Are Zombie company more dangerous than Zombie ETF?

Yes! Zombie ETF might only mean the ETF is not gaining any traction or meeting its benchmark target. However, a Zombie company means a dying firm and the market capitalisation rate of the firm could plummet to zero