THE EFFECT OF PROFITABILITY, LIQUIDITY, LEVERAGE, AND COMPANY SIZE ON FINANCIAL DISTRESS

Abstract

Financial distress is a situation where a company's financial performance declines and occurs before the company goes bankrupt. This study aims to analyze the effect of profitability, liquidity, leverage, and company size on financial distress in Food and Beverage sub-sector companies listed on the Indonesia Stock Exchange for the 2022–2024 period. This study uses a quantitative approach with secondary data obtained from the companies' annual financial reports. The research sample was determined using a purposive sampling method, resulting in 55 companies with a total of 165 observations. In this study, financial distress was proxied using the Altman Z-Score, so a higher Z-Score indicates a lower risk of financial distress. The results show that profitability and liquidity have a positive and significant effect on the Altman Z-Score, leverage has no significant effect, while company size has a negative and significant effect on the Altman Z-Score. Simultaneously, all independent variables have a significant effect on financial distress. The implications of this research indicate that companies need to increase profitability and maintain liquidity to reduce the risk of financial distress, as well as optimize asset and resource management because large company size does not always indicate better financial conditions. Therefore, companies need to optimize financial performance management effectively as an effort to minimize the risk of financial distress.