Empirical study on financial distress level on manufacturing industry in Indonesia based on Altman Z score and solvency ratio
Due to the financial crisis, credit scoring for measuring the bankruptcy level is becoming more crucial. One of the methods of credit scoring is Altman Z score which has been widely used in the U.S. This research used a total of 95 companies out of 135 companies on manufacturing industry in Indonesia. Researcher applys the score for manufacturing in Indonesia by forming empirical financial distress model for Indonesian using Solvency Ratio (S score) as dependent variable and the independent variables are the same as Altman Z score. Generally the manufacturing industry in Indonesia is divided into 3 big sectors: basic and chemical sector, various industries sector and consumer goods sector. The Z score reveals that the overall condition of manufacturing industry in Indonesia is quite good based on the score with only 42.105% of 95 companies in distress zone, it describes that the other majority aren't facing financial distress problems. Whereas, the S score reveals only 25.263% of the 95 companies are facing financial distress problem based on the zone of discrimination determined by using the quartile analysis. Both of the bankruptcy models show that consumer goods sector are the one facing the least financial distress problems comparing to the other two sectors, whilst, the various industries sector are the one facing highest distress problems. Afterwards this research analyzes the correlation between the bankruptcy models and firm's profitability. Later on, the research disclose that although both the Z score and S score are fit, the value R2 signifies that there seems to be many other factors which influencing the Z score and the S score.
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