Analysis of Financial Distress Using Altman's Z-Score Model in Selected Indian Pharmaceutical Companies

Abstract

The necessity for financial analysis is growing as a result of industrialization, trade, and commerce. Predicting financial difficulties has become a key concern for all firms since the financial crisis happened in 2008. For assessing a company's financial health and the likelihood of insolvency, employ Altman’s Z-score model. Early bankruptcy prediction is vital for both the parties involved in the company and society. Based on their sales in the year 2021-2022, the top five pharmaceutical companies listed on the Bombay Stock Exchange were chosen as a sample for this study. The period of the study is five years, from 2017-2018 to 2021-2022. For this study, secondary data is employed. The collected data was examined by using Altman's "Z" score model in Microsoft Excel. The results show that the average Z-score for the pharmaceutical sector over the course of the study was greater than 4.5, which is significantly greater than the threshold value of 1.8 and indicates that the sector's overall financial position is satisfactory.

Predictive Analysis of Financial Distress in Pharma Sector: A Quantitative Approach using Altman’s Z-Score Model

“…companies. These results align with findings from similar studies (Ratnasari et al, 2024;Acharyya, 2023;Jagannathan et al, 2023;Pravin & Dhabaliya, 2023).…”

“…Its legacy endures as a testament to the power of financial analysis in navigating the complexities of corporate finance and safeguarding against financial distress (Abidin et al, 2023). This legacy extends beyond traditional sectors, as the application of Altman's Z-Score model has diversified into various industries, including pharmaceuticals (Ratnasari et al, 2024;Acharyya, 2023;Pratiwi et al, 2023;Pravin & Dhabaliya, 2023;Nayem, 2022). In assessing the financial health of companies within this sector, Altman's model has proven instrumental (Arnu & Nugraha, 2024;Jagannathan et al, 2023).…”

“…Notably, Abbot India Ltd. stood out with robust financial health, emphasizing the importance of prudent financial management in navigating the pharmaceutical sector's complexities (Annathurai et al, 2023). Pravin and Dhabaliya (2023) employed Altman's Z-score model to predict financial difficulties in the pharmaceutical sector, using data from the top five companies listed on the Bombay Stock Exchange from 2017-2018 to 2021-2022. Secondary data analysis was conducted, revealing an average Z-score exceeding 4.5, signifying a satisfactory financial position for the sector, crucial for stakeholders and society alike.…”