The Effect of Leverage, Operating Cash Flow Ratio, and Total Asset Turnover on Financial Distress Risk with Operating Profit Margin as a Moderating Variable in Textile Companies in Indonesia
Usman Mustofa*
Rida Prihatni
Agung Dharmawan Buchdadi
Financial distress denotes an erosion of financial soundness that, absent timely detection, may culminate in insolvency. Indonesia’s textile and textile products industry contends with intensifying strain arising from global economic vicissitudes, escalating production outlays, and the repercussions of the COVID-19 pandemic, amplifying susceptibility to financial distress. This study scrutinises the effect of Leverage (Debt to Equity Ratio), Operating Cash Flow Ratio (OCFR), and Total Asset Turnover (TATO) on financial distress, with Operating Profit Margin (OPM) as a moderator. Employing a quantitative approach, the study draws upon secondary data from the financial statements of textile and textile product subsector firms listed on the Indonesia Stock Exchange in 2017–2025. A sample comprising 10 firms, furnishing 90 observations, was delineated through purposive sampling. Financial distress is gauged via the Grover Score, and the data are subjected to panel data regression employing the Random Effect Model (REM) with Moderated Regression Analysis (MRA). The findings disclose that Leverage exerts a significant negative effect upon the Grover Score, betokening heightened exposure to financial distress. OCFR manifests no significant effect, whereas TATO and OPM yield significant positive effects, suggesting that judicious asset utilisation and robust operating profitability attenuate financial distress risk. Moderation analysis discloses that OPM fortifies the effect of Leverage on financial distress and augments the positive nexus between TATO and the Grover Score, yet does not moderate the effect of OCFR. These findings underscore the salience of capital structure stewardship, asset efficiency, and profitability as stratagems for mitigating financial distress within Indonesia’s textile industry.
Abdu, E. (2022). Financial distress situation of financial sectors in Ethiopia: A review paper. Cogent Economics & Finance, 10(1), 1996020. https://doi.org/10.1080/23322039.2021.1996020
Ali, N. B. M., & Rahim, N. M. (2024). Cash flow analysis: Red flag indicators of financial distress in Malaysian companies. Edelweiss Applied Science and Technology, 8(5), 179–194. https://doi.org/10.55214/25768484.v8i5.1680
Apasya, T., Machmuddah, Z., & Sumaryati, A. (2023). The Effect of Financial Ratios on Financial Distress Conditions is Moderated by Profitability Ratios. Jurnal Penelitian Ekonomi Dan Bisnis, 8(2), 67–79. https://doi.org/10.33633/jpeb.v8i2.7961
Apriyani, D., Arditha Rachman, A., & Makhsun, A. (2025). Pengaruh Rasio Likuiditas, Profitabilitas, Solvabilitas dan Aktivitas Terhadap Financial Distress Perusahaan Yang Terdaftar di Bursa Efek Indonesia Pada Tahun 2024. Journal of Accounting and Finance Management, 6(3), 1638–1655. https://doi.org/10.38035/jafm.v6i3.2327
Diep To, U. (2024). Analysis of factors affecting financial distress in Vietnam – an emerging economy in East Asia. Investment Management and Financial Innovations, 22(1), 68–81. https://doi.org/10.21511/imfi.22(1).2025.06
Felicia, W., & Lindrianasari, L. (2025). Determinants influencing companies receiving going concern opinions: Empirical evidence from a developing market. Risk Governance and Control: Financial Markets and Institutions, 15(1, special issue), 163–173. https://doi.org/10.22495/rgcv15i1sip2
Ghozali, I. (2021). Aplikasi analisis multivariete dengan program IBM SPSS 26. Universitas Diponegoro Press.
Hadityo, F. S., & Indrawati, N. K. (2024). Prediksi Financial Distress Dengan Model Altman Z”-Score, Zmijewski X-Score, Springate S-Score, Dan Grover G-Score. Jurnal Management Risiko Dan Keuangan, 3(3), 301–311. https://doi.org/10.21776/jmrk.2024.03.3.08
Hanafi, M., & Purwanto, S. (2025). Financial Distress Prediction Model Using Financial Ratios and Cash Flow: A Quantitative Approach (Sudy for retail companies listed on the IDX for the 2020-2024 period). Quantitative Economics and Management Studies, 6(4), 518–529. https://doi.org/10.35877/454ri.qems4035
Hidayat, W. W., & Yuniati, T. (2024). Determination of Financial Distress in Transportation Equipment Industry: Evidence from Indonesia. Quality - Access to Success, 25(199), 262–271. https://doi.org/10.47750/QAS/25.199.29
Isayas, Y. N. (2021). Financial distress and its determinants: Evidence from insurance companies in Ethiopia. Cogent Business & Management, 8(1), 1951110. https://doi.org/10.1080/23311975.2021.1951110
Jati, K. W., Agustina, L., Amal, M. I., Wahyuningruma, I. F. S., & Zulaikha, Z. (2021). Exploring the internal factors influencing financial distress. Accounting, 7, 791–800. https://doi.org/10.5267/j.ac.2021.2.005
Junior, R., & Bangun, N. (2024). Pengaruh Profitability, Working Capital, dan Free Cash Flow terhadap Financial Distress pada Perusahaan Manufaktur yang Terdaftar di Bursa Efek Indonesia Periode 2018–2020. Jurnal Paradigma Akuntansi, 6(1), 46–52. https://doi.org/10.24912/jpa.v6i1.28536
Khresat, O. M., & Jassar, M. A. (2025). Operating Profit Margin, Financial Leverage, and Return on Invested Capital’s Effects on the Profitability of Firm in Jordan’s Industrial Sector. Academic Journal of Interdisciplinary Studies, 14(1), 380–386. https://doi.org/10.36941/ajis-2025-0025
Kristanti, F. T., & Dhaniswara, V. (2023). The accuracy of artificial neural networks and logit models in predicting the companies & financial distress. Journal of Technology Management & Innovation, 18(3), 42–50. https://doi.org/10.4067/S0718-27242023000300042
Kristanti, F. T., & Pancawitri, S. (2024). Some Factors Affecting Financial Distress in Telecommunication Companies in Southeast Asia. Business: Theory and Practice, 25(1), 190–199. https://doi.org/10.3846/btp.2024.20018
Lubis, H. Y., & Aisjah, S. (2024). Analisis Financial Distress Dengan Altman Z-Score. Jurnal Management Risiko Dan Keuangan, 3(3), 250–260. https://doi.org/10.21776/jmrk.2024.03.3.04
Luu Thu, Q. (2023). Impact of earning management and business strategy on financial distress risk of Vietnamese companies. Cogent Economics & Finance, 11(1), 2183657. https://doi.org/10.1080/23322039.2023.2183657
Mahesh, R., Kumari, A., Sharma, D., N, S., & Ramesh, R. (2025). Predicting financial distress in emerging markets: the case of Indian small enterprises. Cogent Economics & Finance, 13(1), 2489708. https://doi.org/10.1080/23322039.2025.2489708
Movsesyan, S., & Seissian, L. A. (2025). Analysis of financial distress factors in the mining industry: Empirical study of the developing market. Journal of Governance and Regulation, 14(1), 218–229. https://doi.org/10.22495/jgrv14i1art20
Naibaho, E. A. B., & Natasya, A. (2023). Ratio Analysis to Financial Distress with Profitability as a Moderation Variable. Jurnal Reviu Akuntansi Dan Keuangan, 13(2), 412–440. https://doi.org/10.22219/jrak.v13i2.24506
Orcid, T. G., Oke, O. A., & Orits, E. F. (2025). Effects of Liquidity, Leverage, and Profitability on Financial Distress among Industrial Goods Firms in Nigeria. Management (Montevideo), 3, 279. https://doi.org/10.62486/agma2025279
Pratitasari, A. D., & Kusumawati, E. (2025). Financial Distress: Real Interest Rate, Operating Cash Flow, Operating Capacity, Sales Growth dan Kepemilikan Institusional. El-Mal: Jurnal Kajian Ekonomi & Bisnis Islam, 6(6), 2605–2624. https://doi.org/10.47467/elmal.v6i6.8704
Sethi, S. R., & Mahadik, D. A. (2025). Forecasting Financial Distress for Shaping Public Policy: An Empirical Investigation. Acta Informatica Pragensia, 14(1), 63–87. https://doi.org/10.18267/j.aip.253
Soni, R., Hawaldar, R. T., Vaswani, I. S., Spulbar, A., Birau, C., Minea, R. L., Mendon, E., Criveanu, S., & Criveanu, M. M. (2021). Predicting financial distress in the Indian textile sector. Industria Textila, 72(5), 503–508. https://doi.org/10.35530/it.072.05.20214
Sunaryo, D., Lestari, E. P., Puryandani, S., & Hersugondo, H. (2025). Driving Shareholder Value through Technopreneurship Innovation. Aptisi Transactions on Technopreneurship (ATT), 7(3), 751−765. https://doi.org/10.34306/att.v7i3.642
Tong, Y., & Serrasqueiro, Z. (2021). Predictions of failure and financial distress: A study on Portuguese high and medium-high technology small and mid-sized enterprises. Journal of International Studies, 14(2), 9–25. https://doi.org/10.14254/2071-8330.2021/14-2/1
Walela, E., Omagwa, J., & Muathe, S. (2022). Financial Risk, Firm Size and Financial Distress: Turbulent Times for Firms Listed at the Nairobi Securities Exchange, Kenya. Advanced Journal of Social Science, 10(1), 88–102. https://doi.org/10.21467/ajss.10.1.88-102
Wardhana, A. K., & Idawati, W. (2021). Analysis of Financial Distress with Profitability as Moderation Variable. Jurnal Akuntansi, 25(2), 222–238. https://doi.org/10.24912/ja.v25i2.807
Wilujeng, R., & Yulianto, A. (2020). Determinan Financial Distress dengan Profitabilitas Sebagai Variabel Moderating. Jurnal Penelitan Ekonomi Dan Bisnis, 5(1), 90–102. https://doi.org/10.33633/jpeb.v5i1.2746