Teori Kesulitan Keuangan (Financial Distress' Theory)

Summary

This video script discusses the concept of financial distress, explaining its significance as an early indicator of potential bankruptcy. The speaker defines financial distress using various expert opinions and outlines key indicators both external (e.g., declining dividends, layoffs) and internal (e.g., falling sales, high debt). The script also introduces several models used to predict financial distress, such as the Altman Z-Score, Springbed Score, Smash Score, and Grouper Score. It concludes by emphasizing the importance of early detection to avoid severe financial crises, highlighting the practical application of these predictive tools.

Takeaways

• 😀 Financial distress is a phenomenon that signals a decline in a company's financial performance, often occurring before bankruptcy.
• 😀 According to Webton (1990), financial distress happens when operating cash flow is insufficient to meet short-term obligations such as accounts payable or interest payments.
• 😀 Plat and Club (2002) define financial distress as a stage where a company's financial condition deteriorates before bankruptcy or liquidation.
• 😀 Indicators of financial distress include a consistent decline in dividends, continuous losses, closing or selling business units, and mass layoffs, as well as falling market prices.
• 😀 Internal indicators of financial distress involve decreasing sales, declining profitability, and excessive debt leading to higher capital costs.
• 😀 Three types of financial distress are economic failure, business failure, and financial failure, with each having distinct implications for a company.
• 😀 Insolvency, a key aspect of financial distress, can be classified into technical insolvency (short-term liquidity issues) and strategic insolvency (where liabilities exceed assets).
• 😀 Fahmi (2011) categorizes financial distress into four levels: Category A (extremely high and dangerous), Category B (high and risky), Category C (moderate and recoverable), and Category D (mild).
• 😀 The causes of financial distress include poor resource allocation (neo-classical model), incorrect financial structure (financial model), and poor corporate governance (corporate governance model).
• 😀 There are several methods for predicting financial distress, including Altman Z-score, Springbed score, Smash score, and Grouper Jescom, each based on different financial indicators.

Q & A

What is financial distress, and how does it relate to bankruptcy?

Financial distress is a condition where a company's financial performance deteriorates, typically indicating the early stages of bankruptcy. It occurs when a company's cash flow is insufficient to meet its short-term obligations, such as trade debts or interest expenses, which may eventually lead to bankruptcy if not addressed.

What are some common external indicators of financial distress?

External indicators of financial distress include a decrease in dividends, continuous losses, the closure or sale of business units, large-scale layoffs, and a consistent decline in stock prices. These signals often suggest that a company is facing significant financial difficulties.

How do internal factors contribute to financial distress?

Internal factors such as declining sales volume, reduced profitability, poor decision-making by management, and excessive reliance on debt contribute to financial distress. These issues often arise from ineffective management strategies or financial mismanagement, leading to poor financial health.

What are the three main types of financial distress identified by Break Hamdan Givenchy?

The three main types of financial distress are: 1) Economic failure, where a company's income cannot cover its operational and capital costs; 2) Business failure, which occurs when a business loses its profitable prospects and may shut down; 3) Financial failure, where the company becomes insolvent and cannot meet its short-term financial obligations.

How does Fahmi categorize the severity of financial distress?

Fahmi categorizes financial distress into four levels: 1) Category A (Very high and dangerous), where the company is on the brink of failure; 2) Category B (High and potentially dangerous), which indicates serious risk; 3) Category C (Moderate and recoverable), where recovery is still possible; and 4) Category D (Mild distress), indicating minor issues that can be resolved with proper management.

What is the Neo-Classical model of financial distress?

The Neo-Classical model of financial distress suggests that such situations occur when resources are misallocated within a company. Inefficient resource management and poor decision-making are key factors that contribute to financial distress under this model.

How does the financial model explain financial distress?

The financial model asserts that financial distress arises when a company’s financial structure is flawed. This could involve an improper mix of debt and equity, leading to liquidity problems, which ultimately contribute to distress.

What role does corporate governance play in financial distress according to the Corporate Governance Model?

The Corporate Governance Model suggests that financial distress can occur even when a company has well-managed assets and finances but suffers from poor governance. This could include issues like lack of oversight, poor leadership, or inadequate strategic decision-making, which can lead to financial trouble.

What is the Altman Z-Score, and how is it used in predicting financial distress?

The Altman Z-Score is a formula used to predict the likelihood of a company facing bankruptcy. It uses five financial ratios related to profitability, leverage, liquidity, solvency, and activity. A Z-Score closer to 1.8 indicates high bankruptcy risk, while a score near 3 suggests financial stability.

How does the Springbed Score model predict financial distress?

The Springbed Score model, developed in 1978, predicts bankruptcy potential based on a score derived from various financial factors. A score greater than 0.86 indicates that a company is likely healthy and not at risk of bankruptcy, while a score below 0.86 suggests a higher risk of financial distress.