Abstract
The purpose of this research is to examine the accuracy of the Altman Model and the Ohlson Model in Bankruptcy Prediction.The research population is all companies who are listed on the Indonesian Stock Exchange. The sample of the research is 40 manufacturing companies listed on the Indonesian Stock Exchange in the period of 2010-2014 that are divided into companies with financial distress and those without financial distress.The data analysis technique is the Multiple Discriminant Analysis and Logit Analysis. The Multiple Discriminant Analysis is derived from the Altman Model while the Logit Analysis is derived from theOhlson Model. The results show that the Ohlson Model and the Logit Analysis are more accurate than the Altman Model and the Multiple Discriminant Analysis in predicting bankruptcy of manufacturing firms in the Indonesian Stock Exchange (BEI) in 2010-2014. Also, the results of the study reveal that the ratio of retained earnings to total assets; earning before interest and taxes to total assets; market value of equity to total liabilities; sales to total assets; and debt ratio, return on assets, working capital to total assets and net income were negative in the last two years. Hence constitutes the benchmark for consideration in determining the financial distress of a company.
Highlights
The development of technology and the change in the economic cycle have led the business world to continue to improve
Prihanthini and Sari (2012) argued that bankruptcy is a condition in which a company can no longer afford its operation well, because of the financial distress experienced by these entities has been very severe
Elmabrok and Kim (2012) found that bankruptcy or financial distress occurs when the amount of liabilities exceeds the fair value of the assets or when current liabilities exceed current assets
Summary
The development of technology and the change in the economic cycle have led the business world to continue to improve. These changes have an impact on the fierce competition experienced by all subjects in the business community (Sinambela, 2009). Besides the changes that continue to occur, one of the problems that could become a threat for a company is bankruptcy. Elmabrok and Kim (2012) found that bankruptcy or financial distress occurs when the amount of liabilities exceeds the fair value of the assets or when current liabilities exceed current assets. Bankruptcy or financial distress experienced by most companies could have an appalling impact on the world’s economy (June, 2012)
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