Prediction of Financial Distress in Manufacturing Companies: Evidence from Indonesia

Abstract

Research aims: This study aims to examine the effect of liquidity ratios, activity ratios, leverage ratios, and sales growth as predictors of financial distress before the bankruptcy stage.Design/Methodology/Approach: The samples of this study included manufacturing companies listed on the Indonesia Stock Exchange (IDX) for the period 2016 to 2019. The samples were selected using the purposive sampling method, and 334 sample companies were obtained. Then, the data analysis employed logistic regression.Research findings: The results revealed that all financial ratios investigated in this study significantly affected financial distress. In addition, while the liquidity ratio, activity ratio, and sales growth had a significant negative effect, the leverage ratio had a significant positive impact on financial distress.Practical and Theoretical contribution/Originality: Currently, most research on bankruptcy has concentrated on bankrupt companies, which are the final phase of the financial distress stage. Meanwhile, the current study attempts to address the gap by researching financial distress prediction before the bankruptcy stage.Practitioner/Policy implications: The results of this study are expected to help stakeholders to take corrective action early to prevent financial distress to the bankruptcy stage.Research limitation: The study only used a negative profit period of two years, at the stage of severe liquidity, and utilized four years of data in one industry sector.

Pengaruh likuiditas, profitabilitas, solvabilitas, dan aktivitas terhadap financial distress pada perusahaan yang terdaftar di Bursa Efek Indonesia periode 2020-2021

“…Hubungan antara Rasio Likuiditas dengan Financial Distress Bukhori et al (2022) melakukan penelitian mengenai efek rasio keuangan terhadap kesulitan keuangan perusahaan-perusahaan manufaktur yang ada pada Bursa Efek Indonesia, dengan rasio lancar sebagai proxy dari rasio likuiditas. Berdasarkan penelitian tersebut, didapatkan bahwa current ratio berpengaruh secara negatif terhadap kesulitan keuangan.…”

“…Dengan demikian, hal tersebut dapat diilustrasikan bahwa semakin tinggi nilai DAR, maka semakin rendah nilai Z-Score yang dihasilkan, sehingga memungkinkan perusahaan berada dalam kondisi kesulitan keuangan. Secara umum, nilai DAR yang tinggi adalah indikasi bahwa banyak aset perusahaan yang dibiayai oleh hutang sehingga kondisi keuangan perusahaan dapat dikategorikan sebagai kurang baik Hasil dari penelitian ini mendukung apa yang telah disampaikan pada penelitian-penelitian sebelumnya, seperti Bukhori et al (2022) dan Mashudi et al (2021) yang menyatakan bahwa variabel rasio solvabilitas mempunyai pengaruh yang signifikan dan negatif terhadap kesulitan keuangan.…”

Factors Behind the Early Signs of Financial Distress in an Indonesian Medical Device Company During Covid- 19: A Case Study of Pt Cakra Medika Utama

“…When a firm is severely short of internal cash due to high external financing, the firm's investment becomes more sensitive to its cash flow (Beladi et al, 2021). Bukhori et al (2022) further explained that the high level of sales will increase the potential profit that will be obtained by the company and has the potential to raise cash so that the company can meet the burden of its obligations to reduce the occurrence of financial distress. In dealing with the symptoms of declining financial performance and preventing financial distress, companies can take several actions such as: (1) selling main assets, (2) merging with other companies, (3) reducing capital expenditures and research and development, (4) issuing new shares, (5) negotiating with banks and other creditors, (6) exchanging debt for equity, or (7) filing bankruptcy (Ross et al, 2015).…”

Prediction of Financial Distress With Financial Ratio Analysis

“…Companies that have large debts will find it difficult to release the debt burden (Setiawan and Amboningtyas, 2018). The amount of the company's total debt will result in financial distress (Hidayat and Meiranto, 2014).…”