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

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.