ANALYSIS THE EFFECT OF LIQUIDITY, PROFITABILITY, AND SOLVENCY RATIO TOWARD COMPANY’S FINANCIAL DISTRESS (A CASE OF TAXTILE AND GARMENT COMPANIES LISTED IN IDX)

Abstract

This research aimed to examine the effect of liquidity as measured by current ratio, profitability as measured by asset turnover ratio, and solvency as measured by debt to total asset ratio in predicting financial distress in a textile and garment companies listed in Indonesia Stock Exchange (IDX). The population of this research are all textile and garment companies listed on Indonesia Stock Exchange. While was determine by the several criteria they are have IPO before 2010 and minimal have one negative earnings pershare on 2010 to 2014 to obtain a sample of 10 companies. Type of data used in this research is secondary data that obtained from the Indonesia Stock Exchange (www.idx.co.id). The method of analysis used in this research is logistic regression analysis. Based on the results of logistic regression analysis with a significance level of 5%, the results conclude: (1) Liquidity ratio (current ratio) has negative relation to probability or tendency of the companies in textile and garment industry suffred financial distress, with not significant effect to financial distress. (2) Profitability ratio (activity turnover ratio) has negative relation to probability or tendency of the companies in textile and garment industry suffred financial distress, with significant effect to financial distress. (3) Solvency ratio (debt to total asset ratio) has positive relation to probability or tendency of the companies in textile and garment industry suffred financial distress, with not significant effect to financial distress. Base on the above results, it is suggested : (1) For the company, can be used as a consideration to improve the performance before it develops into financial distress, because financial distress is a signal before lead to bankruptcy. (2) For academics and next researcher, can increase an empirical and scientific evidence knowladge about the impact of liquidity, profitability, and solvency in predicting financial distress and use other ratio to represent liquidity, profitability, and solvency ratio. (3) For the investor, it can be use as consideration in making the right investment decision.