Analysis of The Effect of Leverage and Operating Cash Flow on Financial Distress in Textile and Garment Companies Listed on The IDX 2020-2024

Abstract

The textile and garment industry has faced considerable pressure due to the COVID-19 pandemic and global economic instability, increasing the risk of financial distress. This study analyzes the effects of leverage and operating cash flow on financial distress among textile and garment subsector companies listed on the Indonesia Stock Exchange from 2020 to 2024. A quantitative approach was employed using secondary data obtained from annual financial statements. The sample comprised 14 companies and 70 observations selected through purposive sampling. Financial distress was measured using the Modified Altman Z-Score, leverage was proxied by the Debt to Asset Ratio, and operating cash flow was measured as the ratio of operating cash flow to total assets. The data were analyzed using panel data regression in EViews 14. The results indicate that the Random Effect Model was the most appropriate specification and was corrected using White period coefficient covariance to address heteroskedasticity. Leverage had a significant negative effect on the Z-Score (coefficient -9.268072; probability 0.0341), whereas operating cash flow had no significant effect (coefficient -140.5743; probability 0.2499). Simultaneously, the two variables had a significant effect on financial distress, with an R-squared value of 34.93%. These findings demonstrate that debt structure should be a primary consideration when assessing financial distress risk in textile and garment companies.