Abstract
We believe company financial statements can be used as a tool to analyze and also as an indicator to know the financial performance. The financial statements contain information for various financial ratios, which are an important tool for assessing the company’s financial performance in the future. The purpose of this research is to know the role of the current ratio, operating cash flow, and the inflation rate in predicting financial distress of consumer goods industry sector listed in the Indonesia Stock Exchange period 2011–2015. Financial distress prediction models need to be developed to assist managers in overseeing company performance and help identify important trends. To analyze the current ratio, operating cash flow, and the inflation rate has a probability of occurring financial distress for the company, used logistic regression. From this study resulted in the finding that the probability of a company exposed by financial distress is caused by operating cash flow, while the current ratio and the inflation rate have a smaller probability of the company of consumer goods to be exposed by financial distress.
Highlights
Financial leverage is the use of funds with a fixed expense in the hope that the use of these funds will increase the income per share (Riantani & Nurzamzam, 2015)
The data source is secondary data derived from the financial statements of the consumer goods industry sector listed on the Indonesia Stock Exchange period 2011-2015
To analyze the current ratio, operating cash flows, and the inflation rate has a probability of occurring financial distress for the company, used logistic regression
Summary
Changing economic conditions can affect the activities and performance of the company, and can cause a high risk, especially in terms of funding difficulties, resulting in companies experiencing financial difficulties, ranging from mild to severe difficulty even to bankruptcy or experienced bankruptcy commonly known as financial distress (Frydman et al, 1985; Habib et al, 2013; Riantani & Nurzamzam, 2015; Uzhegova, 2015). Many studies use liquidity ratios, profitability, financial leverage, operating cash flow. H1: Current ratio has a large probability of the company’s financial distress. H2: Operating cash flow has a large probability of the company’s financial distress. The decrease of profitability will increase the probability of getting financial distress. The company is slow in adjusting the increase in costs, resulting in an increase in costs that are faster than the company’s income, the impact is a decrease in profitability. A decrease in profitability will increase the probability of getting financial distress (Simlai, 2014; Riantani & Nurzamzam, 2015; Setyawati, 2016). Whether to continue investing or not depends on the decision of investors, creditors and bankers to provide ongoing financial support to companies that are experiencing financial difficulties, thereby reducing further losses
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