Bankruptcy Prediction Analysis of Manufacturing Companies Listed in Indonesia Stock Exchange

International Journal of Economics and Financial Issues ISSN: 2146-4138 available at http: www.econjournals.com International Journal of Economics and Financial Issues, 2015, 5(Special Issue) 354-359. 2nd AFAP INTERNATIONAL CONFERENCE ON ENTREPRENEURSHIP AND BUSINESS MANAGEMENT (AICEBM 2015), 10-11 January 2015, Universiti Teknologi Malaysia, Kuala Lumpur, Malaysia. Bankruptcy Prediction Analysis of Manufacturing Companies Listed in Indonesia Stock Exchange Sinarti1*, Tia Maria Sembiring2 Department of Managerial Accounting, Politeknik Negeri Batam, Batam Centre, Batam, Indonesia, 2Department of Managerial Accounting, Politeknik Negeri Batam, Batam Centre, Batam, Indonesia. *Email: 1 ABSTRACT Bankruptcy prediction gives an overview to management and investors about actual condition of the company briefly and clearly, because the poor condition does not happenall of a sudden it can be seen regularly. Bankruptcy prediction in this study uses three approaches, namely the model Z-Score, Springate, and Zmijewski. This study is aimed to determine the metals and manufacturing companies’ health level which listed in Indonesia Stock Exchange and also find out if there are significant differences of the three models were used to examine the approach of a company defaults. This study uses secondary data of 11 companies in th ebasic industry and the metal type and etc. Linear regression and t-test are used to prove the hypothesis. The results of this study concludes that there is no significant difference to the prediction of model Z-Score and Springate, but there is a significant difference to the prediction model Z-Score with Zmijewski and Springate with Zmijewski. Z-Score model predictions show many companies are in a state of potential bankruptcy, as well as Springate, but Zmijewski stating that the company more healthy. Keywords: Z-Score, Springate, Zmijewski, Bankruptcy JEL Classifications: M000 1. INTRODUCTION Ratio analysisis divided into five types, namely liquidity ratio, activity ratio, solvency ratio, profitability ratio, and market ratio, the five basic ratios have a role in assessing the financial condition of a company in accordance with the components of the data used in this ratio. These five basic ratios in this accounting are combined therefore the ratio analysis model capable of predicting the bankruptcy of acompany. Bankruptcy issues become widely used as previous research the mesas suggestions provide multiuse information for many parties, such as the Aghaei et al. (2013) who studied the bankruptcy prediction largest subsidiary in Iran which indicated overall condition of a healthy company with a Z-Score model research. Bellovary et al. (2007) who conducted discussions regarding bankruptcy prediction models find that the Z-Score model is abankruptcy prediction model most popular used. In Indonesia bankruptcy prediction has been widely applied, one by Peter and Yoseph (2011) and Qureshi et al. (2014) conducted 354 the analysis bankruptcy Z-Score model, Springate, and Zmijewski in the food industry. Anticipating the company’s financial condition early is essential conducted by each company for the continuation of the company’s operations and better marketing strategies. Condition scompanies that show signs of concern should start anticipating since the beginning of the bankruptcy of the company. Iron and steel industry in Indonesia should be developed from now on, this can be done through various ways such as that carried out by the Iron and Steel Industry Association of Indonesia which encourage the government to help support the strengthening of the steel industry sector by simplifying a number of regulations in order to compete the Asean Economic Community (AEC) in 2015. Iron and steel production in the country, only around 7.2 million tons, while the national demand reaching nearly 10 million tons, to lack of stock are to be met through imports from other countries. This will affectthe condition of the manufacturing company in Indonesia International Journal of Economics and Financial Issues | Vol 5 • Special Issue • 2015 Sinarti and Sembiring: Bankruptcy Prediction Analysis of Manufacturing Companies Listed in Indonesia Stock Exchange which must compete with foreign companies therefore the condition of excellence enterprise should be the main requirement prior to the AEC in 2015 later. In 2025 there will be government programs regarding connectivity infrastructure, including roads, seaports, airports, railways, and energy generation that will be synchronized with the Indonesian economic corridors. To continue to survive in a keen competition soon after the market opened freely would become a huge chore for manufacturing companies, so that the need for disclosure of companies’ condition in order to anticipate can be done from the beginning (Shezad et al., 2014). Predicting bankruptcy of a company can be done by using the ratio of the model that had been developed since 1968 invarious countries. The model used is the Z-Score, Springate, and Zmijewski. Z-Score model uses five ratios, Springate uses four ratios, while Zmijewski only uses three ratios, calculation and analysis using the three models is certainly very possible to produce different conclusions so that the need fortesting using three models. 2. LITERATURE REVIEW According to the Hanafi and Halim (2007), the analysis of bankruptcy made to obtain early warning of bankruptcy (early signs of bankruptcy). The earlier signs of the bankruptcy, the better for the management as management can make improvements (Khan, 2014). Lenders and also the shareholders can make preparations to cope with the worse possibility. Signs of bankruptcy in this case are viewed by using accounting data. In practical and also inempirical research, financial hardshipis difficult to define. That of kind difficulties could mean the start of a liquidity problem (short-term), which is the lightest financial difficulties, up to the declaration of bankruptcy, which are the most severe difficulties. Thus financial difficulties can be seen as a long difficulty, ranging from the mild to the most severe. The criteria which is used to predict company bankruptcy with this model is that the company that scored Z>2.99 were classified as healthy companies, while companies that have a Z-Score <1.81 were classified as potentially bankrupt company. Z-Score <1.81 were classified as a company in the gray area or areas of gray, with a value of “cut-off” for this index is 2.675 (Muslich, 2007). 2.2. Springate Model This model was developed in 1978 by the Gorgon LV Springate. Springate model is a model that uses the ratio of multiple discriminant analysis (MDA). In the MDA method takes more than one financial ratio related to the bankruptcy of the company to establish a good model. To determine the ratios anywhere that can detect the possibility of bankruptcy, Springate use MDA to choose 4 ratios of 19 financial ratios were popular in t (...truncated)