Zombie Company Definition

A zombie company is a firm that continues to operate even though its liabilities exceed its assets (in other words, it has a net worth of zero).

Zombie Company Example

Let's say Bank XYZ has $1 billion in assets (loans it has made to customers) and $2 billion in liabilities (delinquent loans, interest payments due to customers, debt it may have borrowed, etc.). Bank XYZ could declare bankruptcy and default on its obligations at any time, but for now it is still alive. It could be referred to as a 'zombie company.'

Are Zombie Companies Risky?

Zombie companies are risky investments because they could fail at any time. However, some zombie companies might receive additional financing, such as government bailouts or other money, which could prompt a turnaround that might keep the company solvent.