Evaluating Financial Stability and Fraud Detection in Selected Indian Pharmaceutical Companies Using Altman Z Score and Beneish M Score Models

This study examines the financial health and the risk of financial statement fraud among five major pharmaceutical companies—Sun Pharmaceutical Industries Ltd., Lupin Limited, Aurobindo Pharma Limited, Dr. Reddy's Laboratories, and Cipla Limited—over the period from 2019 to 2023. Financial statements are crucial documents that provide insights into a company's financial performance and position. However, they can be susceptible to manipulation, leading to financial fraud. The research utilizes the Altman Z-score to assess financial stability and the Beneish M-score to detect the likelihood of financial manipulation. Findings indicate that these companies generally exhibit strong financial health, with Altman Z-scores consistently categorizing them in the "Safe" zone, suggesting a low risk of bankruptcy. Sun Pharmaceutical Industries Ltd. showed significant financial improvement throughout the period, while Lupin Limited experienced a brief dip into the "Gray" zone in 2022 before recovering. Aurobindo Pharma Limited, Dr. Reddy's Laboratories, and Cipla Limited demonstrated remarkable stability, with Cipla Limited maintaining consistently high Z-scores. The Beneish M-score analysis indicated a low risk of earnings manipulation for most companies, though Lupin Limited showed occasional high-risk years. Overall, these results suggest that these pharmaceutical companies maintain strong financial practices and transparency, promoting investor confidence and reflecting positively on the industry's financial integrity and sustainability.