PENGARUH DEBT TO EQUITY RATIO, NET PROFIT MARGIN DAN CURRENT RATIO TERHADAP FINANCIAL DISTRESS

Abstract

Purpose: This study aims to analyze the influence of financial ratios, especially leverage ratio (debt to equity ratio), profitability ratio (net profit margin), liquidity ratio (current ratio), and activity ratio, on the possibility of financial distress in property and real estate sector companies in Indonesia during the COVID-19 pandemic.

Design/Methodology/approach: This study uses a quantitative approach with secondary data analysis in the form of financial statements of property and real estate sector companies listed on the Indonesia Stock Exchange. Financial ratios are analyzed as independent variables to predict the company's financial distress condition. The analysis method used is logistic regression to determine the influence of each ratio on the probability of financial distress.

Findings: The results of the study show that debt to equity ratio and current ratio have a significant influence on financial distress, according to several previous studies. However, net profit margin does not show a significant influence on financial distress, in line with the results of research by Desmon et al (2022). These findings reflect that a company's ability to meet short-term obligations and funding structure has more influence on business continuity in times of crisis than the level of net profit.

Research Implications: This research provides important implications for company management and investors in assessing financial risks, especially in times of crisis. Monitoring leverage and liquidity ratios needs to be the main focus to avoid financial distress. For policymakers, these results also provide insight into formulating stimulus policies or interventions for the property sector during the economic recovery period

Originality / Value: This research provides added value by examining the specific conditions of Indonesia's property and real estate sector during the COVID-19 pandemic, which is a crisis period with systemic impacts on almost all business lines. The financial ratio approach in measuring potential financial distress in this sector has not been widely done in the context of the pandemic, so this study enriches the literature and can be used as a reference in corporate financial risk management in times of crisis.

Keywords: Financial Distress, Debt to Equity Ratio, Current Ratio, Net Profit Margin, Sector Properti and Real Estate