Indonesia’s Coal Industry Faces Financial Challenges
Coal remains an important part of Indonesia’s economy, supporting exports, government revenue, employment, and domestic energy needs. The article notes that Indonesian coal production reached 775.2 million tons in 2023, equivalent to 112% of the national production target. Coal exports also made a notable contribution to the economy during the period examined by the researchers.
However, strong production does not automatically mean that every company in the sector has a strong financial position.
The researchers highlighted changes in Return on Assets among coal-subsector companies. ROA increased from 0.11 in 2019 to 0.38 in 2022, before falling to 0.21 in 2023 and 0.16 in 2024. The decline suggests that companies became less effective at converting their assets into profits, potentially increasing concerns about financial stability.
Financial distress refers to a period when a company experiences serious financial difficulties that may precede bankruptcy or liquidation. For investors and creditors, identifying warning signs early can help support better investment and lending decisions.
How the Study Was Conducted
Cardiana and Firdaus used a quantitative causal research design based on secondary financial data. The researchers collected annual financial statements from the official IDX website and company websites covering the 2019–2024 period.
The initial population consisted of 33 coal-subsector companies listed on the IDX. Using specific selection criteria, including continuous listing, complete annual financial reports, recorded profits during the observation period, and the absence of outlier data, the researchers selected six companies for the final sample.
The analysis examined three major financial indicators:
- Current Ratio (CR) to represent liquidity, or the ability to meet short-term obligations.
- Debt to Assets Ratio (DAR) to represent leverage, or the extent to which assets are financed through debt.
- Return on Assets (ROA) to represent profitability, measuring how effectively company assets generate profits.
Financial distress was represented by the Altman Z-Score. The researchers analyzed the relationships using panel-data regression with EViews 12 and used the Sobel test to determine whether profitability mediated the relationships between liquidity, leverage, and financial health.
Profitability Shows the Strongest Relationship
The results indicate that liquidity, measured through the Current Ratio, did not have a significant direct effect on the Altman Z-Score. This means that having more current assets relative to short-term liabilities did not automatically translate into better overall financial health.
Leverage produced a more complex result. The study reported a significant negative coefficient of -4.760249 for DAR in relation to the Z-Score, with a probability value of 0.0177. Meanwhile, ROA showed a strong positive relationship with the Z-Score, with a coefficient of 6.557370 and a probability value of 0.0000.
The model explained approximately 69.91% of the variation in the Z-Score, while the remaining 30.09% was attributed to factors outside the model.
The study also found that liquidity did not significantly affect profitability. In contrast, leverage had a positive and significant effect on ROA, suggesting that debt can potentially support profitability when it is used productively, such as for exploration and mine development.
Profitability Connects Liquidity and Financial Health
One of the study’s most important findings concerns the mediating role of profitability.
The Sobel test showed that ROA significantly mediated the relationship between Current Ratio and Z-Score. The test produced a t-statistic of 2.484835 and a p-value of 0.012961.
ROA also mediated the relationship between Debt to Assets Ratio and Z-Score, producing a t-statistic of 2.882676 and a p-value of 0.003943. Both results were statistically significant.
In practical terms, the findings suggest that liquidity and leverage should not be assessed only as isolated financial ratios. Their effects on financial health can operate through a company’s ability to generate profits from its assets.
Cardiana and Firdaus of Universitas Mercu Buana emphasize that profitability plays an important role in strengthening corporate financial conditions and reducing the risk of financial distress. Their analysis indicates that efficient asset management and appropriate debt use can help companies improve profitability and strengthen financial stability.
Implications for Companies and Investors
For coal companies, the findings point to the importance of improving asset efficiency rather than simply maintaining high liquidity. Cash and other current assets need to support productive operations, while debt should be managed at a level that can contribute to business development without creating excessive financial risk.
For investors, ROA may provide an important additional signal when evaluating the financial health of coal companies. A company’s ability to generate profit from its assets can provide information that liquidity figures alone may not reveal.
The researchers also caution that the findings have limitations. The study covers only coal-subsector companies listed on the IDX during 2019–2024, with six companies meeting the sample criteria. Therefore, the results should not automatically be generalized to other industries. Future studies could include variables such as company size, sales growth, total asset turnover, cash flow, and corporate governance.
Author Profile
Angelique Cardiana is a researcher affiliated with Universitas Mercu Buana and the corresponding author of the article. Her work in this publication focuses on corporate financial performance, profitability, liquidity, leverage, and financial distress in Indonesia’s coal subsector.
Iwan Firdaus is affiliated with Universitas Mercu Buana and co-authored the study with Cardiana. His contribution addresses the analysis of financial ratios, profitability, and financial distress among coal-subsector companies listed on the IDX.
Source
Article Title: The Effect of Liquidity and Leverage on Z-Score as a Predictor of Financial Distress, with Profitability as a Mediating Variable (A Study of Coal Sub-Sector Companies Listed on the Indonesia Stock Exchange)
Authors: Angelique Cardiana and Iwan Firdaus
Affiliation: Universitas Mercu Buana
Journal: International Journal of Sustainable Applied Sciences (IJSAS)
Publication: Volume 4, No. 8, 2026, pp. 967–978
DOI: https://doi.org/10.59890/ijsas.v4i8.32
Official Journal: http://ijsasjournal.my.id/index.php/ijsas
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