Definition of a Zombie Company

Financial Terms Beginning with Z

What is a Zombie Company

A zombie company is an existing business that is able to continue operations, but it can only generate sufficient revenue and cash flow to maintain its operations without significant growth or investment in new projects. Essentially, a zombie company is a company that is barely surviving.

These companies typically have a high debt-to-equity ratio and struggle to make interest payments on their debt. A zombie company may also have low profitability, stagnant growth and limited investment in new products or services.

How Can a Zombie Company Exist

A zombie company may be waiting for a merger or other closure to occur but a venture capitalist who has invested in a zombie company has to make a difficult decision as to whether to liquidate or continue to invest funds in hopes that it will eventually become a winner. The term "zombie" comes from the fact that these companies are neither dead nor alive, but rather they continue to exist in a state of limbo.

Zombie companies can be a drag on the economy because they tie up resources that could be better used by more productive companies. They also often rely on government support to survive, which can be a burden on taxpayers.

A zombie is also known as a walking dead company.

Examples of Zombie Companies

There are many companies around the world that can be considered "zombie companies" but here are a few examples.

  • Sears Holdings Corporation: Once a retail giant in the United States, Sears has struggled to adapt to changing consumer preferences and competition from online retailers. The company has been in decline for years and has closed many stores, but they continue to operate and service its debt obligations.
  • Japan Airlines (JAL): JAL has been struggling for years due to high debt levels, low profitability and competition from low-cost carriers. The company went bankrupt in 2010 and received a government bailout to continue operating but has not been able to turn its fortunes around.
  • WeWork: The coworking space provider had a highly publicized IPO failure in 2019 and has been struggling to generate profits and reduce costs. Despite these challenges, the company has been able to secure additional funding and continue operations.
  • Commerzbank: This German bank struggled with low profitability, high costs and a difficult business environment. While Commerzbank was bailed out by the German government and has undergone restructuring, including cost-cutting measures, it continues to operate as a "zombie" company.
  • Toys "R" Us: The toy retailer went bankrupt in 2018 and closed its stores but its intellectual property and brand were acquired by a new company. The new company has been able to continue operating and servicing its debt, but it has not been able to recapture its former success.

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