September 23, 2020
Zombie companies are becoming increasingly common in today's economic environment of unprecedented economic stimulus, historically low interest rates and deferred financial obligations.
Zombie companies are considered enterprises that are barely staying afloat, unprofitable, weighed down by high levels of debt, poor or negative cash flows and relatively low market valuations compared to asset book values.
According to a November 2019 report by KPMG Australia (Distance to default : A Default Indicator for Australian-listed companies Vol. 6) about one in seven ASX-listed companies could be considered a zombie company.
The Australian government's moves to stimulate the economy with JobKeeper and Cash Flow Boost has prevented the collapse of many zombie companies. Other actions to defer commitments such as lease payments, tax obligations, loan repayments, debt covenants and other creditor support in many cases may only be deferring a wave of zombie company bankruptcies.
Time may be running out for zombies. The cash flow boost will end soon and the new JobKeeper tests will see many businesses, particularly in Queensland, fail the new decline in turnover eligibility tests. After 28 years of continuous economic expansion in Australia, this may be the first recession most businesses have encountered.
We are here to help. We are well positioned to assist businesses that may be feeling the pinch from COVID-19 through cash flow analysis, forecasting, sensitivity analysis and providing you with options on how best to address the challenges you may be facing.
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