An Empirical Test of The Financial Ratio Effect on Financial Distress in Indonesia (Study in Garment and Textile Industry)
top of page
Asian Institute of Research, Journal Publication, Journal Academics, Education Journal, Asian Institute
Asian Institute of Research, Journal Publication, Journal Academics, Education Journal, Asian Institute

Economics and Business

Quarterly Reviews

ISSN 2775-9237 (Online)

asian institute research, jeb, journal of economics and business, economics journal, accunting journal, business journal, managemet journal
asian institute research, jeb, journal of economics and business, economics journal, accunting journal, business journal, managemet journal
asian institute research, jeb, journal of economics and business, economics journal, accunting journal, business journal, managemet journal
asian institute research, jeb, journal of economics and business, economics journal, accunting journal, business journal, managemet journal
crossref
doi
open access

Published: 27 June 2022

An Empirical Test of The Financial Ratio Effect on Financial Distress in Indonesia (Study in Garment and Textile Industry)

Dihin Septyanto, Nadia Figrita Welandasari, Nur Sayidah

University of Esa Unggul (Indonesia), University of Dr. Soetomo (Indonesia)

asian institute research, jeb, journal of economics and business, economics journal, accunting journal, business journal, management journal

Download Full-Text Pdf

doi

10.31014/aior.1992.05.02.428

Pages: 222-230

Keywords: Current Ratio, Debt to Asset Ratio, Return on Assets, Financial Distress

Abstract

This research aims to investigate the impact of the current ratio (CR), debt to asset ratio DA), and return on assets (ROA) on financial distress. The measure of financial distress level is the Altman Z-score index. The sampling technique in studies is purposive sampling. The sample is 16 textile companies and 80 firm-year observations. The result of data analysis indicates that the current ratio (CR), debt to the asset (DA), and return on assets (ROA) significantly influence financial distress (Z-Score rating). The partially current ratio and return on assets positively affect financial distress (Z-Score Index). The debt to asset ratio has a significant negative effect on financial distress (Z-Score Index). The finding contributes to the company's management considering these three ratios in making business decisions to avoid financial distress. The originality of this study is the analysis of financial distress from the textile and garment industry in the Indonesian capital market.

References

  1. Almilia, L. S., & Kristijadi. (2003). Financial ratios analysis to predict the Financial Distress condition of a registered manufacturing company at IDX. Journal of Accounting and Auditing of Indonesia 7, 183-206.

  2. Altman, E. I. (1968). Financial Ratios, Discriminant Analysis and the Prediction of Corporate Bankruptcy. The Journal of Finance, 23(4), 589–609. http://www.jstor.org/about/terms.html.

  3. Andre, O. (2013). The influence of profitability, liquidity and leverage in predicting Financial Distress (empirical study at the IDX listed industrial companies). Management journal , pp 1-20.

  4. Anggraini, R. (2017). Analysis of profitability, liquidity, Leverage, and inflation in predicting Financial Distress on Property and Real Estate companies listed on the Indonesia Stock Exchange. USU Journal

  5. Apriliani. (2018). Analysis of factors influencing Financia Distress an agiculture company. Junal Institute of Agriculture Bogor 2018

  6. Brigham, E. F., & F. Houston, J. (2014). The fundamentals of Financial management Essentials of financial management    (Vol. Ed). Jakarta: Salemba Empat.

  7. Desiyani, N. (2011). Analysis of the influence of macro and micro economic indicators on bankruptcy predictions. Case study of manufacturing Company at IDX year 2007-2009. Thesis from Diponegoro University.

  8. Fachrudin, K. A. (2008). Corporate and Personal Financial difficulties. Medan: USU Press.

  9. Fahmi, I. (2013). Analysis of financial statements. Bandung: Alfabeta.

  10. Gahar, Y. I. (2016). Analysis of the accuracy rate bancruptcy Prediction model between Altman Z-score, Ohlson O-score, and KMV model. 2015 – 2016.

  11. Ginting, M. C. (2017). Influence of Current Ratio and Debt to Equity Ratio to Financial Distress in Property company Real Estate & in Indonesia Stock Exchange. Journal of Management, 3(2), 37-44.

  12. Gunawan, A., Assagaf, A., Sayidah, N., & Mulyaningtyas, A. (2019). Financial Distress Di BUMN Indonesia Dan Faktor-Faktor Yang MempengaruhI. Ekuitas: Jurnal Ekonomi Dan Keuangan, 3(2), 226–243. https://doi.org/10.24034/j25485024.y2019.v3.i2.4135

  13. Hanafi, M. (2009). Analysis of financial statements. Yogyakarta: UPP STIM YKPN.

  14. Haq, S., Arfan, M., & Siswar, D. (2013). Financial ratios analysis in predicting Financial Distress (study on companies listed on the Indonesia Stock Exchange). Journal of Accountancy, 2(1), 37-46.

  15. Harahap, S. S. (2013). Critical Analysis of financial statements. Jakarta: PT. Rajawali Grafindo Persada.

  16. Jimming, L., & Weiwei, D. (2011). Empirical Study on the Corporate Financial Distress Prediction Based on Logistic Model: Evidence from China's Manufacturing Industry. International Journal of Digital Content Tecnology and its Aplications, 5(6).

  17. Kasmir. 2015. Analisis Laporan Keuangan. Edisi Satu. Jakarta: PT RajaGrafindo Persada.

  18. Khaliq, A., Motawe Altarturi, B. H., Mohd Thas Thaker, H., Harun, M. Y., & Nahar, N. (2014). Identifying Financial Distress Firms : A Case Study of Malaysia' s Government Linked Companies ( GLC ). International Journal of Economic, Finance and Management, 3(3), 141–150.

  19. Liana, D., & Sutrisno. (2014). Financial ratios analysis to predict the condition of Financial Distress Manufacturing company Jakarta. Journal of Management and Business Studies, 1 (1), 52 – 62.

  20. Nurhidayah & Rizqiyah, F. (2017). "Financial performance in predicting Financial Distress". Jibeka journal, Vol. 11, No. 1, pp. 42-48.

  21. Pustylnick, I. (2012). Restructing The Financial Characteristics of Projects in Financial Distress. Global Jurnal of Bussiness Research. 6(2).

  22. Putra, Y. A., & Sujana, E. (2017). The financial ratio analysis for predicting the condition of Distress Manufacturing Company listed on Indonesia Stock Exchange. Journal Accounting Program S1, 8(2).

  23. Ramadhani, A. S., & Lukviarman, N. (2009). Comparison of bankruptcy analysis of the first Altman Model, Altman Revision, and Altman modifications to the size and age of the company as the explanatory variables (case studies at manufacturing companies listed on the Indonesia Stock Exchange). Jurnal Bisnis Siasat, 13 (1), 15-28.

  24. Rahmawati, A. I. (2015). Financial Ratio analysis to financial Distress conditions in manufacturing companies listed on Indonesia Stock Exchange year 2008-2013. Diponegoro Journal of Accounting.

  25. Wahyu, A. (2018). Factor analysis – Factors affecting the Financial Distress of the company of Agriculture , Bogor Agricultural Institute Journal    207 – 221.

  26. Rohmadini. (2018). Pengaruh profitability, Liquidity and Leverage Terhadap Financial Distress Study on the Food & Beverage company listed on the Indonesia Stock Exchange period 2013-2016. Journal of Business Administration  (JAB), Vol. 61 No. 2

  27. Rezki, D.J.S. (2017). Factors affecting Financial Distress on Property and Real Estate companies open in Indonesia Stock Exchange. University of  North Sumatera.

  28. Rodini, A., & Ali, H. (2010). Financial Management. Jakarta: Partners.

  29. Salehi, M., Lotfi, A., & Farhangdoust, S. (2017). The effect of financial distress costs on ownership structure and debt policy: An Application of Simultaneous Equation in Iran. Journal Management Development, 36(10), 1216–1229. https://doi.org/10.1108/JMD-01-2017-0029

  30. Sari, S.P. (2018). Influence of liquidity, Leverage and profitability of Financial Distress in the Food and Baverage company listed on the Indonesia Stock Exchange year 2010-2016. University of North Sumatera.

  31. Shahara, T. (2018). Bankruptcy prediction Company based on Altman Z-Score Model analysis on textile company listed on Indonesia Stock Exchange year 2011-2016. University of North Sumatera.

  32. Sayidah, N., & Assagaf, A. (2020). Assessing Variables Affecting The Financial Distress of State-Owned Enterprises in Indonesia (Empirical Study in Non-Financial Sector). Business: Theory and Practice, 21(2), 545–554. https://doi.org/https://doi.org/10.3846/btp.2020.11947

  33. Sayidah, N., Assagaf, A., & Faiz, Z. (2020). Does earning management affect financial distress? Evidence from state-owned enterprises in Indonesia. Cogent Business and Management, 7(1), 0–14. https://doi.org/10.1080/23311975.2020.1832826

  34. Sayidah, N., Assagaf, A., & Possumah, B. T. (2019). Determinant of state-owned enterprises financial health : Indonesia empirical evidence. Cogent Business & Management, 6(1), 1–15. https://doi.org/10.1080/23311975.2019.1600207

  35. Strouhal, J., Štamfestová, P., Ključnikov, A., & Vincúrová, Z. (2018). Different Approaches To the Ebit Construction and Their Impact on Corporate Financial Performance Based on the Return on Assets: Some Evidence From Czech Top100 Companies. Journal of Competitiveness, 10(1), 144–154. https://doi.org/10.7441/joc.2018.01.09

  36. Sugiyono. (2013). statistics for research. Bandung: Alfabeta.

  37. Yuliana, L. (2013). Analysis of financial distress of selected transportation companies on the Indonesian stock Exchange using Z-Score

bottom of page