Using Z-score models to forecast financial stability in pharmaceutical firms: a case study of SAIDAL
DOI:
https://doi.org/10.51599/is.2024.08.02.06Keywords:
financial analysis, financial failure prediction, banking financing, Z-score.Abstract
Purpose. This research paper aims to underscore the significance of Z-score models in assessing the financial status of loan applicants “financially distressed” in their relationship with commercial banks “financially solvent” entities. For this purpose, it uses the results of financial analysis, including various financial ratios, allowing for a comparison between the findings of financial equilibrium analysis methods and the results obtained from applying Z-score models. Additionally, it seeks to identify the most suitable Z-score models for the Algerian business environment in terms of detecting cases of financial insolvency and debt default.
Results. The results of a comparative empirical study are presented by juxtaposing the use of financial analysis against scoring models in order to evaluate the decision to grant a bank loan, because the firm’s set of specific investments and contracts is related with the part of the financial surplus and financial support entities. The empirical study found that the reliability of Z-score model outcomes is associated with the nature of financial analysis outputs, particularly with the specificity of the estimation model built according to data specific to a particular business environment, e.g. “SAIDAL Group” during 2021–2023 as one of pharmaceutical firm listed company in Algerian stock exchange. This is because the relative weights embodied in the financial ratio parameters relied upon in each estimation model are linked to the study sample within the context of sectorial benchmark ratios of a specific economic environment. A notable congruence emerges between the findings of financial analysis, particularly in the domain of financial equilibrium scrutiny and the improvement of the financial standing of the focal institution, and the results obtained from the assessment of the efficiency of bank lending processes using Z-score models.
Scientific novelty. For the evaluation of loans applicant via Z-score based on financial ratios and financial statement, it is necessary to reformulate scoring models to align with the Algerian business environment, given their critical importance in evaluating loan applications from several clients applying for such financial requests, particularly from the perspective of commercial banks. Initially, the author undertook an analysis of Saidal’s financial situation to identify potential insolvency risks. Subsequently, however, through this study, we reassessed its situation after entering into international partnership contracts with international pharmaceutical laboratories. This is particularly significant given the inherent risks associated with pharmaceutical products, including: quick expiration, scientific and technological obsolescence, and intense scientific competition among pharmaceutical factories in the field of innovation, after the Covid-19.
Practical value. The study aims to apply Z-scoring models in one of the leading Algerian company in pharmaceutical production “SAIDAL Group”, following an analysis of its financial stability and tracking its financial status before and after the COVID-19 period. Through a comparative approach, the author compared the digital field of institutional failure between the outputs of financial equilibrium analysis and scoring models. In this paper, the author tried to apply Z-scoring models to the accounting information of Saidal Complex after its listing on the Algerian stock exchange, against the backdrop of the Algerian government’s new policy aiming to involve commercial banks as intermediaries in stock market operations, in particular with the inclusion of Algerian Popular Loan Bank in the official market as one of the listed companies, given its leading role in providing investment loans to industrial institutions.
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