The Role of Current Ratio, Debt to Equity Ratio, and Operating Cash Flow on Financial Distress

Abstract

Financial distress is a condition of deteriorating financial health that indicates a company is experiencing financial difficulties or bankruptcy. Financial distress can be detected through financial indicators such as the Current Ratio (CR), Debt-to-Equity Ratio (DER), and Operating Cash Flow (OCF). This study aims to analyze the influence of CR, DER, and OCF on financial distress in property and real estate companies listed on the Indonesia Stock Exchange (IDX). This study uses a quantitative approach with secondary data obtained from companies’ annual financial reports. The research sample consists of 20 property and real estate companies selected using purposive sampling. Data analysis employs multiple linear regression analysis using the Statistical Package for Social Sciences (SPSS). The results of the study indicate that the Current Ratio, Debt-to-Equity Ratio, and Operating Cash Flow have a significant impact on financial distress. The Current Ratio helps explain a company’s ability to meet its short-term obligations, thereby reducing the risk of financial distress. The Debt-to-Equity Ratio influences financial distress because high levels of debt increase the risk of financial difficulties for the company. Meanwhile, Operating Cash Flow has a significant effect because the ability to generate cash flow from operating activities is a key indicator in maintaining a company’s operational sustainability. The findings of this study imply that liquidity, capital structure, and the ability to generate Operating Cash Flow are key indicators in predicting a company’s potential for financial distress, particularly for companies in the property and real estate sectors.