Assessing the effectiveness of quantitative models in predicting financial distress compared to traditional financial indicators in the pharmaceutical industry

Abstract

This study aimed to examine the effectiveness of the Altman, Kida, and Sherrod models in predicting financial failure compared to traditional financial indicators and ratios used in analyzing the financial position of institutions. To achieve this objective, the descriptive-analytical method was adopted, through a theoretical description and analysis of the study variables. In addition, an applied study was conducted on the data of Hydra PHARM for the years 2021, 2022, and 2023, by calculating traditional financial indicators and ratios along with the most well-known quantitative models for predicting financial failure.

The study concluded that quantitative models for predicting financial failure are ineffective in achieving this purpose in light of recent developments and varying economic environments. In contrast, traditional financial indicators and ratios, despite their relative age, provide a more accurate reflection of an institution’s actual financial situation and highlight key aspects overlooked by quantitative models, regardless of changing conditions and environment.