The effect of financial ratios on financial distress with the springate approach

Eliya, Lintang ORCID: https://orcid.org/0000-0002-5742-546X and Permatasari, Ditya ORCID: https://orcid.org/0000-0002-5742-546X (2025) The effect of financial ratios on financial distress with the springate approach. Malia: Jurnal Ekonomi Islam, 17 (1). pp. 39-57. ISSN 2549-2578

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Abstract

Purpose: This study aims to examine the effect of financial ratios—liquidity, profitability, non-performing financing, and effectiveness—on financial distress in Sharia Rural Banks (BPRS) in Central Java, using the Springate (S-score) model as an early warning approach for financial failure. Design/methodology/approach: This research adopts a quantitative descriptive approach using panel data from 18 Sharia Rural Banks (BPRS) in Central Java over the 2019–2023 period. Secondary data were obtained from audited financial statements published by the Financial Services Authority (OJK). Financial distress was measured using the Springate (S-score) model, while liquidity was proxied by the Financing to Deposit Ratio (FDR), profitability by Return on Assets (ROA), non-performing financing by NPF, and effectiveness by the Operating Expenses to Operating Income (BOPO) ratio. Data were analyzed using panel data regression with the Common Effect Model (CEM). Findings: The results indicate that profitability (ROA) and effectiveness (BOPO) have a significant negative effect on financial distress, suggesting that higher profitability and better operational efficiency reduce the likelihood of financial distress in BPRS. Conversely, liquidity (FDR) and non-performing financing (NPF) show positive but insignificant effects on financial distress. These findings suggest that financial distress in BPRS is more strongly influenced by operational efficiency and asset utilization rather than liquidity conditions or financing quality alone. Practical implications: The findings provide practical insights for BPRS management to prioritize improving profitability and operational efficiency as key strategies to mitigate financial distress. Regulators such as OJK and LPS may also utilize these results to strengthen early warning systems and supervisory frameworks for Islamic rural banks, particularly by focusing on performance-based financial indicators.

Item Type:	Journal Article
Keywords:	springate (s-score); liquidity ratio; profitability ratio; non-performing loan ratio; effectiveness ratio; financial distress
Subjects:	14 ECONOMICS > 1499 Other Economics > 149999 Economics not elsewhere classified
Divisions:	Faculty of Economics > Department of Accounting
Depositing User:	Ditya Permatasari Subandi
Date Deposited:	30 Jul 2026 15:09

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