The Effect of Profitability and Leverage on Financial Distress
Artikel
Oct 22, 2026
Abstract
Purpose: This study aims to examine the effect of profitability and leverage on financial distress among manufacturing companies listed on the Indonesia Stock Exchange (IDX). The study focuses on identifying whether internal financial characteristics represented by profitability and leverage can explain variations in companies' financial distress conditions.
Methodology: This research employs a quantitative approach using secondary data obtained from annual reports and financial statements of manufacturing companies listed on the IDX. The sample selection was conducted using purposive sampling based on predetermined criteria. Data analysis was performed using multiple linear regression to examine the relationship between profitability, leverage, and financial distress.
Results: The findings indicate that profitability and leverage have significant effects on financial distress. Companies with stronger profitability tend to have lower risks of experiencing financial distress due to their ability to generate earnings and maintain financial stability. Meanwhile, higher leverage increases financial pressure because greater dependence on debt may reduce the company's ability to fulfill financial obligations.
Conclusions: The study concludes that profitability and leverage are important financial indicators in predicting financial distress among manufacturing companies. Effective profitability management and prudent debt utilization are essential to maintaining corporate financial sustainability. Limitations: The study is limited to manufacturing companies listed on the IDX and considers only profitability and leverage as explanatory variables. Future research is encouraged to include additional financial and non-financial factors.
Contributions: This study contributes empirical evidence for managers, investors, and policymakers in assessing financial risk and improving corporate financial management strategies.
Keywords
Financial Distress
Financial Risk
Leverage
Manufacturing Companies
Profitability
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How to Cite
Shofwan, M. I., Zaharuddin, & Safariningsih, R. T. H. (2026). The Effect of Profitability and Leverage on Financial Distress. Studi Akuntansi Dan Bisnis Indonesia, 2(4), 265–275. https://doi.org/10.61401/sabi.v2i4.603
Section
Artikel
Authors
M
Mohammad Imam Shofwan
Universitas Panca Sakti
Z
Zaharuddin
Universitas Panca Sakti
R
Ratna Tri Hari Safariningsih
Universitas Panca Sakti
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Published
Oct 22, 2026