What is a Zombie Company? | Phil Town

TL;DR

Zombie value is a valuation method used to assess the net worth of a company by subtracting intangibles and goodwill from its assets, and it is commonly used in bankruptcy court and financial analysis of financial companies.

Transcript

so happy halloween you guys uh this is phil town here from rule one and i thought i would do a kind of a halloween thing sorry i'm recording at five o'clock in the afternoon the sun is pouring through the blinds i can't seem to shut it off which is you know just part of the deal for halloween right so what we're going to talk about i always get que... Read More

Key Insights

• 📼 Zombie value is a valuation method that focuses on a company's tangible assets and excludes intangibles and goodwill.
• ❓ This valuation technique is commonly used in bankruptcy court and when evaluating financial companies.
• 🧟 Tangible equity or book value represents the zombie value of a company.
• 🧟 Benjamin Graham, a prominent investor, used zombie value to buy undervalued companies during the Great Depression.
• 👻 Zombie value allows investors to determine the potential worth of a company in the event of liquidation.
• 🧟 Intangible assets and goodwill are excluded from the zombie value calculation.
• 🧑‍⚕️ Zombie value is a valuable tool for assessing the financial health and net worth of a company.

Questions & Answers

Q: What is a zombie company valuation?

A zombie company valuation is an assessment of a company's net worth by considering only its tangible assets and excluding intangibles and goodwill.

Q: When is zombie value commonly used?

Zombie value is frequently used in bankruptcy court and is particularly applicable when evaluating financial companies.

Q: Why is tangible equity important in zombie value?

Tangible equity, also known as the zombie value, represents the real value of a company's assets after excluding intangibles and goodwill.

Q: How did Benjamin Graham use zombie value?

Benjamin Graham, a renowned investor, would buy cigar butt companies for less than their zombie value, often acquiring them for the cash in the company minus the liabilities.

Summary & Key Takeaways

• Zombie value is a valuation technique that looks at a company as if it were dead, taking into account only its tangible assets and subtracting intangibles and goodwill.

• This valuation method is used in bankruptcy court and is particularly relevant when analyzing financial companies.

• Zombie value allows investors to assess the worth of a company based on its tangible equity or book value.