May 3, 2020
In the 1990’s the term “Zombie Company” originated out of Japan during their lost decade. Today though we are hearing more and more about Zombie Companies in the U.S. Zombies are companies that only make barely enough net income to cover their annual interest costs on debt. Or, they may not even make enough to cover their annual debt and must borrow more money. What are Zombie Companies? Why are Zombie Companies bad? And how can you determine if a company is a Zombie Company or not?
What are Zombie Companies?
What percentage of companies in U.S. are considered Zombies?
Calculation used to identify Zombie Companies
What is the Interest Coverage Ratio?
Example of EBIT and Interest payments indicating Zombie Company Status
Assets minus Liabilities on balance sheet indicate net income number of quarters to pay off debt
Why Zombie companies are bad
How Zombie companies cannot grow or reinvest capital
How the Fed and low interest rates fueled Zombie Company creation
Economic and interest rate risks to Zombie companies
Mentioned in this Episode:
Podcast: Earnings Multiples, Valuations, Revenue, Net Profit Margins, Stock Buybacks and other Explanations http://brokenpiechart.libsyn.com/earnings-multiples-valuations-revenue-net-profit-margins-stock-buybacks-and-other-explanations
Podcast: How low interest rates benefit corporations http://brokenpiechart.libsyn.com/how-low-interest-rates-can-benefit-corporations
Paper titled Rise of Zombie companies: causes and consequences https://www.bis.org/publ/qtrpdf/r_qt1809g.pdf
Contact Derek www.razorwealth.com
Derek Moore’s book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr