Financial Red Flags

Early Detection of Financial Distress in Indonesian Manufacturing Companies Using the Altman Z-Score Model

Abstract

The manufacturing sector plays an important role in Indonesia’s economy but has recently been under pressure due to global disruptions and market instability. This study aims to detect early signs of financial distress in Indonesian manufacturing companies using the Altman Z-Score model. A descriptive quantitative method was applied to 10 manufacturing companies listed on the Indonesia Stock Exchange (IDX) during the 2020–2024 period. Data were obtained from annual financial reports, and the Z-Score was calculated using a modified formula tailored for emerging markets. The results show that 9 out of 10 companies (90%) consistently remained in the Safe zone (Z > 2.99), indicating strong financial performance. One company, PT Indofood CBP Sukses Makmur Tbk (ICBP), experienced financial distress in 2021 with a Z-Score of -298.6167 but showed significant recovery in the following years. These findings indicate that the Altman Z-Score is an effective and reliable tool for detecting financial risks and potential bankruptcy in Indonesia’s manufacturing sector.