THE EFFECT OF SOLVENCY, PROFITABILITY, LIQUIDITY, OPERATING CASH FLOW, AND INTEREST COVERAGE RATIO ON FINANCIAL DISTRESS (EMPIRICAL STUDY IN AVIATION COMPANIES)

Financial distress is a problem that the company must watch out for. Ifthe
company experiences financial distress, the company hasthe potential to experience
bankruptcy. Therefore, it is necessary to make periodic predictions regarding the
company's financial performance. Various characteristics that can beseen regarding
the company's condition indicate that it is experiencing financial distress, such as
delaying debt payments, experiencing increased losses over severalyears, and the
existence of an incorrect company financial structure that causes liquidity limits.
Financial distress as a potential bankruptcy is an important issue, so many models
have been developed to predict this situation. Some of these modelsinclude Altman,
Springate, and Zmijewski. Apart from using a bankruptcy prediction model, some
variables influence the occurrence of financial distress. It is essential to know the
effect of this variable because it can be used as an alternativeto improving the
company's financial distress.
This study uses secondary data from airlines. The data used includes the
quarterly financial reports for the 2019-2021 period, which were obtained through
the website ofthe stock exchange of each country and the website of each company.
The research sample includes 32 companies with 384 observations. Data analysis
was performed using a logistic regression model and Altman, Springate, and
Zmijewski approach to classify companies.
The study results show that solvency positively affects financial distress
when measured by the Altman and Zmijewski approach. This shows that the lower
level of solvency, the higher chance of financial distress. Liquidity negatively
affects financial distress when measured by the Altman approach. This shows that
the higher level of liquidity, the lower chance of financial distress. Profitability
negatively affects financial distress when measured by the Altman, Springate, and
Zmijewski approaches. This means that the higher level of profitability, the lower
chance of financial distress. This study shows that operating cash flow negatively
affects financial distress when measured by the Springate approach. This means that
the higher level of operating cash flow, the lower chance of financial distress. The
interest coverage ratio negatively affects financial distress when measured by The Zmijewski approach. This showsthat the higher the interest coverage ratio, the
lower the chance of financial distress. Therefore, the most accurate company
classification model for identifying financial distress in this study is the Zmijewski
model.
The theory tested in this study is normative accounting theory. The results
of this study can confirm that the general purpose of financial reports is to provide
information about the financial position, financial performance, and cash flow. In
this study, the financial statement information used included total debt, total assets,
current assets, current liabilities, profit before tax, operating cash flow, earnings
before interest tax, and debt burden, which became a source of information for
researchers in calculating the level of financial distress for all samples. The
limitations of this study are the population of aviation companies is still relatively
small to list companies experiencing financial distress successively, so it is
recommended to expand the research population, such as non-financial companies
witha broader population. And suggestions for further research are recommended
to add another measurement in calculating solvency and other variables in
measuring profitability