Contradiction Between Theory and Reality: An Altman Z-Score Analysis of State-Owned Enterprises in the Indonesian Construction and Industrial Sectors

Abstract

This study examines the effects of Current Ratio (CR), Debt to Asset Ratio (DAR), Net Profit Margin (NPM), and Return on Assets (ROA) on financial distress among industrial and construction companies listed on the Indonesia Stock Exchange, while comparing the original and modified Altman Z-Score models. The study employed a quantitative approach with purposive sampling, involving 35 observations from five selected companies. Data were analyzed using multiple linear regression, simultaneous F-tests, and classical assumption tests. The findings indicate that all independent variables simultaneously have a significant effect on financial distress, with the modified Altman model demonstrating greater explanatory power, as reflected in an increase in adjusted R-squared from 50.35% to 62.38%. Individually, DAR emerges as the strongest negative predictor across both models. Meanwhile, CR has a positive and significant effect in the modified model, whereas NPM and ROA remain statistically insignificant, reflecting the capital-intensive characteristics and long-term project cycles of the sector. These findings suggest that companies should prioritize debt management and maintain adequate short-term liquidity to reduce financial distress risks. Investors are encouraged to consider the modified Altman model and emphasize solvency indicators when evaluating financial conditions. Future research should expand the sample size and examine alternative financial predictors or financial distress models.