Financial Distress During the COVID-19 Pandemic: Altman and Springate Model Prediction

Abstract

Background: The retail trade industry has experienced a sharp decline in economic growth during the COVID-19 pandemic. Regulation of social distancing, restrictions on retail shop operating hours, and disruption of online shopping behavior contribute to worsen the financial performance of retail trade companies. </p> <p> Purpose: The purpose of this research is to analyze the prediction of financial distress of retail trade companies. This research chose to use the Altman and Springate Model since both of them are the most accurate and conservative models to predict. </p> <p> Research Methodology: The financial distress analysis technique used is Altman and Springate Model. The calculation of the Altman and Springate Score is based on an equation formula for data in the period before and during the COVID-19 pandemic. The Altman’s Score are grouped in the Safe Zone, Grey Area, and Financial Distress; while the Springate’s Score are grouped in the Safe Zone and Financial Distress categories. </p> <p> Findings: Altman Model Analysis stated that most of the companies experienced a decreased scores, the company’s financial performance during COVID-19 pandemic was predicted financial distress and belong to the Grey Zone category than before COVID-19 pandemic. Springate Model Analysis states that all companies have decreased scores, and the company’s financial performance during COVID-19 pandemic is predicted financial distress than before COVID-19 pandemic. Springate Model revealed a more conservative indicator, but both models stated there were still exist several companies in the Safe Zone category to continue their business. </p> <p> Research limitations: The limitations of this study are only using Altman and Springate Model. The object of this research is the retail trade industry only, then future research may be able to expand the analyzed industry in the new normal conditions. </p> <p> Originality/value: The originality of this research is focused on the retail trade companies as the most affected industry by COVID-19 pandemic. In addition, this research analyzes financial distress based on Altman Z-Score and Springate Model as the most powerful model to predict.