The difference between;
Bankrupt Companies V/S Zombie Companies
- Bankrupt Company
About
a bankrupt company, one can find out from registrar of companies that a particular company has filed bankruptcy application ( e.g. Chapter 11 in The USA)
- Zombie Companies continue to do business without anyone knowing that a particular company is financially so week that it risks doing business.
Obviously, Zombie Companies pose
greater Credit Risk. Importers & banks opening L/C
need to ensure that they don’t open L/C on a Zombie company, Exporters
need to ensure that they don’t export on consignment/contract basis to Zombie
companies
ICIL Google Search Global Survey of Zombie Companies
ICIL Google Search Global Survey of Zombie Companies
- Internet is full of websites giving articles on the threat posed by the increasing number of Zombie Companies world over- Few Links are given below
- What is a Zombie Company & Income Statement of a typical Zombie is given under these links? Open each link and read
Latest about Zombie Companies
https://www.cnbc.com/2020/05/20/highly-indebted-zombie-companies-control-more-than-2-million-us-jobs.html
(1) Highly Leveraged Zombie Companies Threaten the Global Economy
https://www.forbes.com/sites/mayrarodriguezvalladares/2019/06/30/highly-leveraged-zombie-companies-threaten-the-global-economy/#50272https://www.cnbc.com/2020/05/20/highly-indebted-zombie-companies-control-more-than-2-million-us-jobs.html
(1) Highly Leveraged Zombie Companies Threaten the Global Economy
(2)The rise of zombie firms: causes and consequences
https://www.bis.org/publ/qtrpdf/r_qt1809g.pdf
(3) Fear the Walking Dead? Incidence and Effects of Zombie
https://publications.jrc.ec.europa.eu/repository/bitstream/JRC111915/jrc111915_jrc111915_jrc-oecd_fear_the_walking_dead_-_withpubsynumb
(4)Perspective: Fear the walking deal
https://www.ipe.com/perspective-fear-the-walking-dead/10034188.article
(5)Zombie Firms
in Pakistan
https://dailytimes.com.pk/527248/zombie-firms-in-pakistan/https://fortune.com/2019/09/02/why-zombie-companies-are-on-the-rise-and-could-pose-a-threat-to-the-u-s-economy/
(6)Why ‘Zombie’ Companies Are on the Rise—and Could Pose a Threat
to the U.S. Econ
https://gnseconomics.com/en_US/2019/03/11/the-dangerous-zombie-infestation-of-the-world-economy/Asia's
(8)'zombies' concentrated in India, Indonesia and South Korea
https://asia.nikkei.com/Spotlight/Datawatch/Asia-s-zombies-concentrated-in-India-Indonesia-and-South-Korea
(9)'Zombie firms'
a major drag on UK economy, analysis shows
https://www.theguardian.com/business/2019/may/06/zombie-firms-a-major-drag-on-uk-economy-analysis-shows(10) One out of every 10 American companies is a “zombie”
https://qz.com/1141732/one-in-every-10-american-companies-is-a-zombie/
(11) Why China is shutting down zombie companies
https://www.thefinancialexpress.com.bd/views/why-china-is-shutting-down-zombie-companies-1562079783
(12) The Federal Reserve is about to create a lot
more zombies
https://www.marketwatch.com/story/the-federal-reserve-is-about-to-create-a-lot-more-zombies-2019-06-24
(13) Zombie Firms Hit an All Time High
https://smartmoneygains.com/finance/zombie-firms-hit-an-all-time-high/(14)China's Lenders Left in the Dark on 'Zombie' Companies
https://www.bloombergquint.com/videos/china-s-lenders-left-in-the-dark-on-zombie-companies
(15)China's 'zombie' firms weighing on economy
https://www.thenational.ae/business/economy/china-s-zombie-firms-weighing-on-economy-1.835162
(16) Zombie Firm Dynamics and China’s Monetary Policy
http://cfrc.pbcsf.tsinghua.edu.cn/Public/Uploads/upload/CFRC2019_1868.pdf?l=en&y=2019
(17) Avoid
falling into the zombie company trap
https://www.thegazette.co.uk/all-notices/content/100638
(18) Zombie
firms' dragging down UK economy -KPMG
(19) Zombie
Companies - A Drain On Economic Output?
https://www.youtube.com/watch?v=KJC-7bz835Y&list=UUHdE6HODo3UXD9E-QplAFOw&index=18(20) Are Zombie Companies Plaguing The Toronto Stock Exchange
https://www.geologyforinvestors.com/zombie-companies-plague-toronto-stock-exchange-deal-delicate-issue/
(21) 100,000 Zombie Firms Suck Life out of Economy
https://www.thetimes.co.uk/article/100-000-zombie-firms-suck-life-out-of-economy-z6tdgxgx5
(22) We Created a Monster”: The IMF Spoke About the Threat of Zombie Companies
https://www.stalkerzone.org/we-created-a-monster-the-imf-spoke-about-the-threat-of-zombie-companies/
What
is a Zombie Company
“Zombie the company” is a term used to describe an uncompetitive company that needs a
bailout to successfully operate or an indebted company that is only able to
repay interest on its debt
(interest-coverage ratio of 1 or less). Zombie companies generate enough cash flow to only pay back the
interest on the debt and are unable to reduce the
actual principal amount. Therefore, zombie companies do not have excess cash or
capacity and are stagnant, which means they are too weak to invest or grow.
Below is an
example of an income statement of a zombie
company. Note that the interest-coverage ratio is less than 1 in each period.
The income statement of a zombie company
Zombie
companies heavily depend on low-interest rates to survive. Due to governments
and central banks trying to stabilize their economies after a financial crisis,
commercial banks are pressured to extend credit and use low-interest rates
Zombie Company – Business Risk to Importers
& Exporters
