The impact of financial ratios on financial distress in the transportation sector

Abstract

The aim of this study was to assess the impact of various financial ratios on the financial instability of companies, with particular emphasis on the profitability ratio of Return on Assets (ROA), liquidity ratio of Current Ratio (CR), activity ratio of Total Assets Turnover (TATO), and solvency ratio of Debt to Assets Ratio (DAR). The study employs secondary data and selective selection to choose a sample of thirteen transport companies listed on the Indonesia Stock Exchange (IDX) between 2020 and 2022. The study utilised multiple linear regression analysis methods, employing SPSS as the testing programme. The Altman Z-Score method was employed to prioritise the financial distress component. The results indicated that the liquidity ratio, a component of the activity ratio, had a positive impact on financial distress, suggesting that more liquidity might be associated with increased financial hardship. Conversely, the utilisation of leverage was discovered to have an adverse impact on financial distress, indicating that elevated levels of leverage may reduce the likelihood of financial hardship for the selected entities. This study offers useful insights into the intricate relationship between particular financial statistics and the financial distress situation of organisations. It provides a detailed comprehension of how the interplay between liquidity, leverage, and activity dynamics affects the overall financial health of transport companies in the Indonesian stock market.