The Role of Profit and Cash Flow in Predicting Financial Distress: Evidence from Food and Beverage Companies Listed on the Indonesia Stock Exchange

Abstract

In today's highly competitive business environment, companies must strengthen their management to remain competitive. When a company fails to anticipate future developments through effective management, poor decisions can trigger a serious operational crisis and ultimately lead to bankruptcy. Before going bankrupt, a company typically passes through a stage of financial distress: a severe financial crisis marked by persistent losses, a breakdown in funding, and an inability to meet debt obligations. This study examines the role of two key financial indicators, profit and cash flow, in predicting corporate financial distress. The sample consists of food and beverage companies listed on the Indonesia Stock Exchange during 2020–2023. The empirical results show that profit and cash flow differ markedly in their predictive power: profitability has a significant predictive effect on financial distress, whereas the effect of cash flow does not reach statistical significance. These findings provide empirical evidence for the design of early-warning mechanisms for corporate financial risk.