This study modifies Fukuda Nakamura Caballero Hoshi Kashyap (FN-CHK) method to identify zombie firms by incorporating non-recurring gains and losses. The effectiveness of the proposed method is evaluated by existing unqualified companies and specially-treated companies in Chinese stock market. Based on the proposed method, this study analyzes the development trend, the proportion of zombie firms in Chinese listed companies from 2007 to 2015. The comparisons with the traditional methods justify the legitimacy of the proposed method. Furthermore, this study analyzes the result from perspective of macroeconomic environment and industries. Considering zombie firm issue, the study suggests that government should adhere to supply-side reform, properly deal with zombie firms existing for years, conduct industry policy carefully.