Abstract:
This research aimed to analyze the effect of financial ratios on financial distress
prediction on Indonesia’s pharmaceutical industry partially and simultaneously.
There are five independent variables within this research which are being examined
by descriptive statistical analysis, classical assumption test, multiple linear
regression, and hypothesis testing. In selecting the observation data, the purposive
sampling method and panel data are being used in this research, where the data were
collected from company’s official website. Adopting quantitative research and has
80 units of observation data from 5 samples from 2014Q1 – 2017Q4. Financial
ratios used within this research are inventory turnover, debt to asset ratio, return on
asset and cash flow coverage ratio. Meanwhile, earning per share is being chosen
as the proxy for predicting financial distress condition, due to it is such a good
indicator of any organization's profitability and is one of the most commonly used
profitability measures. The result reveals the value of adjusted R-squared among
inventory turnover, debt to asset ratio, return on asset and cash flow coverage ratio
is 85.8783% simultaneously affecting the financial distressed prediction. The result
determined as well if only the cash flow coverage ratio that is not significant to
predict financial distress probability for selected samples and it shows if return on
assets ratio is the most significant factor towards financial distress prediction.
