The Effect of Current Ratio, Return on Assets, Debt-to-Equity Ratio, Inflation, and Exchange Rates on Financial Distress in Companies in the Textile and Apparel Subsector Listed on the Indonesian Stock Exchange From 2020 to 2024

Abstract

The textile and apparel industry plays an important role in Indonesia’s manufacturing sector but has faced increasing financial pressure due to rising production costs, import competition, weakening global demand, and exchange rate fluctuations. This study aims to examine the effects of the current ratio (CR), return on assets (ROA), debt-to-equity ratio (DER), inflation, and exchange rates on financial distress in textile and apparel subsector companies listed on the Indonesia Stock Exchange during 2020–2024. A quantitative approach was employed using secondary data obtained from audited financial statements, the Indonesia Stock Exchange, Statistics Indonesia, and Bank Indonesia. Purposive sampling resulted in 11 companies and 55 panel observations. Financial distress was measured using the Altman Z-Score, while panel data regression was performed using EViews 12. The results show that CR has a positive and significant effect on the Z-Score, whereas the exchange rate has a negative and significant effect. ROA, DER, and inflation have no significant partial effects. Simultaneously, all independent variables significantly affect financial distress, with an adjusted R-squared of 77.60%. These findings indicate that liquidity and exchange rate movements are particularly important determinants of financial distress. Therefore, companies should strengthen liquidity management and implement appropriate exchange rate risk mitigation strategies to maintain financial stability.