ANALYSIS ALTMAN (Z-SCORE) IN PREDICTING THE POTENTIAL OF

BANKRUPTCY ON TELECOMMUNICATION COMPANIES LISTED IN

INDONESIA STOCK EXCHANGE
(Case Study: PT. Indosat Tbk, Period from 2009-2013)

PROPOSAL OF FINAL PROJECT

By:
DEVIA RESNIAWATI
NIM : 29112452

Master of Business Administration Program

School of Business and Management
Bandung Institute Of Technology
2014

I. Background
Today the Indonesian mobile phone industry has entered a new phase. Since the enactment of
Law (UU) no. 36/1999 on telecommunications and government regulations in 2002 that allow
foreign

mobile

operators

entering

the

Indonesian

market,

since

that's

Indonesian

telecommunications industry entered the telecommunications liberalism round. This condition

causes the actors in the Indonesian cellular market continue to evolve into more. The number of
telecom operators in Indonesia are among the highest in the world, reaching 10 companies. But
of that number, there are six largest operator, Telkom, Telkomsel, Indosat, XL Axiata, Bakrie
Telecom, and Smartfren (Arif Pitoyo, bandung.bisnis.com).

The development of the telecommunications industry also helps to improve the interest of
investors and potential investors to invest in the industry. The industry has an opportunity and a
bright prospect in the future given the high number of users of telecommunications services in
Indonesia. Based on the annual report on the Indonesian telecommunications company data
showed that PT Indosat Tbk. (ISAT) is one of the giant telecommunications company that
consistently dominate and monopolize the mobile telecommunications industry in Indonesia.
ISAT's competition with other big cellular player performed in compete for very large
prospective Indonesian consumers in order to maintain and increase its market share of each.

Seeing this phenomenon, of course, investors in the stock market will be more interested to do
business and invest in this industry. However, the uncertainty in investing in the stock market
prompted investors to be cautious in making decisions on the stock to be purchased in order to
maximize returns combined with certain risk in any investment decisions. One important aspect
to consider in making its investment strategy in the stock market by looking at the company's
financial performance (Claude, 1996) "(Dudi Rudianto, 2012:160)". Financial performance
assesment is one way that can be done by the management to fulfill its obligation to the financier
and also to achieve objectives stipulated by the company.

In assessing the company's financial performance, can be used a certain measure or benchmark.
Usually the measure used is the ratio or index linking two financial data. In comparison the kinds
of financial analysis ratio covering two forms: comparing the ratio of the past, the present and
the future to the same company. And the other is to form the ratio between one company with
other similar companies. The results of the calculation of financial ratios that can describe the

condition of the company, whether the company is in a healthy condition or in conditions that are
declining. If the performance is decreased continuously then it can lead to bankruptcy.

There are some understanding of bankruptcy.Bankruptcy ( bankruptcy ) usually are defined as

the failure of the company in performing operations of the firm to generate profit (Supardi and
Mastuti, 2003) (http://www.e-jurnal.com n.d). Meanwhile, according to Law (UU) No. 4 In
1998, bankruptcy was declared a state in which an institution by court decision if the debtor has
two or more creditors and not pay at least one debt that has matured and can be billed.

In the development, not all telecom companies can make a profit on the operation. Some
companies actually decreased profits or even a loss. Table 1 shows the movement of net income
telecommunication companies in Indonesia (PT Indosat Tbk.) in 2009 until 2013. Companies
should be more cautious in the face of competition in order not to experience losses, or in more
severe cases the company went bankrupt. In an effort to avoid bankruptcy, managers need to
know the financial condition of the company or to predict the potential bankruptcy of the
company.
Table 1. Movement The Net Profit Of PT Indosat Tbk.
Year
Net Profit

2009

2010

2011

2012

2013

Rp 1.498 T

Rp 647.2M

Rp 879.7M

Rp 417.4M

Rp 375.1M

Source : Annual public expose ISAT www.idx.co.id

Several studies have developed a corporate bankruptcy prediction models. One model that is
Altman Z-Score method. This method consists of four ratios, working capital to total assets,
retained earnings to total assets, earnings before interest and taxes, and the market value of
equity capital to total debt. Value resulting from the calculation of the ratio of four to be able to
describe the condition of the company's financial performance is categorized into three
conditions bankrupt, prone or grey zone, and healthy.

II. Objectives and Benefits Of Research

Based on the background above, the objectives of this study are :
1. To determine the ratio of the Altman Z-score with parameters below using data from the
financial statements period 2009-2013 :
a. Working Capital to Total Assets Ratio
rb. Retained Earnings to Total Assets Ratio
c. Earnings Before Interest and Taxes to Total Assets Ratio
d. Market Value of Equity to Book Value to Total Liabilities Ratio
e. Sales to Total Assets Ratio
2. To predict bankruptcy in PT Indosat Tbk using Altman Z-Score period 2009-2013.

Benefits of this research are :

1. Attempt to identify symptoms early in the company's bankruptcy and determine PT
Indosat Tbk. in the category of bankrupt or not.
2. For the management of PT Indosat Tbk., the results of this study can be used as a
reference in making financial decisions.
3. For investors can be used as additional information in making investment in PT Indosat
Tbk to see the performance of its financial statements.
4. For Academics become a source of reference for the writing of scientific papers related to
the telecommunications industry, the analysis of ratios and potential bankruptcy of
company.

III. Root Of Problem

PT Indosat Tbk, faced a decline in several important accounts in the financial statements. Net
income suffered a significant downturn, it is caused by the difference in the exchange rate of the
rupiah against the American dollar. This fact is reinforced by the presence of decreased gains
from exchange rate. Some online media said that this condition will make the company into
bankruptcy. Debt to equity ratio tends to decline because the company decided to pay long-term
debt that matures. This condition is also reinforced with total liabilities to total assets ratio that
illustrates a tendency to decline, though in 2013 start going on hikes. Working capital PT Indosat
Tbk has a negative value every year, so the company is not able to meet its operational activities.

Working capital can be a minus means the current assets less the current. The minus working
capital and also from the current ratio show that the level of companys liquidity is low in other
words the ability to pay short term liabilities is poor. If this condition persists in the long run,
especially if indosat is planning on adding to the debt, then the company will potentially
bankrupt. More details from root of the problem is illustrated in the following fish bone diagram.

Figure 1. Fish Bone Diagram Of Indosat Potential Bankruptcy

Financial Ratio

Net Income
2009 : Rp 1,498.2T

Current Ratio

2010 : Rp 647.2M

Debt to Equity Ratio

(2009: 54.63%) (2010:45.37%)

2011 : Rp 879.7M

(2009:141.14%) (2010:133.66%) (2011:124.79%)

(2011:48.11%) (2012:75.43%)

2012 : Rp 417.4M

(2013:53.13%)

2013 : Rp 375.1M

(2012:114.58) (2013:145.98%)
Total Liabilities to Total Assets
(2009:66.67%) (2010:65.77%) (2011:64.37%)
(2012:64.885) (2013:69.70%)

2009 : Rp 4,725

2009 : Rp 1,656.4T

2010 : Rp 5,400

2010 : Rp 492.4M

2011 : Rp 5,650

2011 : RP 36.7M

2012 : Rp 6,450
2013 : Rp 4,150

2012 : Rp (789.44M)
2013 : RP (3,011,4T)

Market Value

Exchange Gain

2009 : (Rp 5,928.5M)

Potential
Bankruptcy

2010 : (Rp 6,569M)

2011 : (Rp6,200.5M)
2012 (Rp2,706.9M)
2013 (Rp 6,325.42M)

Working Capital

Sources : PT Indosat Tbk. Public Exposure and Financial Report

III. Theoritical
Lahle Wolfe said that financial statements are reports that show how income and expenses have
affected the company as a whole. They provide a snapshot of the current financial standing of the
business. According to Ikatan Akuntan Indonesia (Lukviarman, 2006) a complete financial
statement components consist of:
a. The balance sheet
b. Profit and loss statement
c. Changes in equity statement
d. Cash flow statement

Understanding of each component of the financial statements in accordance with Jumingan

(2008) is as follows:
a. The balance sheet describes the condition of a company on a certain date, generally at the end
of the year while closing the book.
b. Profit and loss statement shows the results obtained from the sale of goods or services and fees
incurred in the process of achieving those results.
c. Changes in equity statement is an overview of changes in owner's equity that occurred during
a specific period, such as a month or a year.
d. Cash flow statement is cash changes that occur during a certain period.

Financial analysis is the process of evaluating businesses, projects, budgets and other financerelated entities to determine their suitability for investment. Typically, financial analysis is used
to analyze whether an entity is stable, solvent, liquid, or profitable enough to be invested in.
When looking at a specific company, the financial analyst will often focus on the income
statement, balance sheet, and cash flow statement. In addition, one key area of financial analysis
involves extrapolating the company's past performance into an estimate of the company's future
performance (www.investopedia.com)

Financial performance is measuring the results of a firm's policies and operations in monetary
terms. These results are reflected in the firm's return on investment, return on assets, value
added,

etc

(www.businessdictionary.com).

The

company's

performance

can

be

analysed/measured through financial reports of the company. According to the Hanafi and Halim
(2005) an analysis of the financial statements of a company want to know basically because the
level of profitability (profit) and the level of health risk or a firm. Ratio analysis is the analysis is
often used in assessing financial performance over this, but this analysis only shows one aspect
alone without being able to connect it with other aspects. Overcoming this weakness then it can
use analysis tools that connect some ratio as well as to assess the financial condition analysis of
Z-score.

Analysis of Z-score is a tool used to predict the bankruptcy of a company level by calculating the
value of a ratio and then put in a discriminant equations. To calculate the value of Z, first we
should count types of financial ratios, namely:

T1 = Working Capital / Total Assets. This measures liquid assets as firm in trouble will usually
experience shrinking liquidity.
T2 = Retained Earnings / Total Assets. This indicates the cumulative profitability of the firm, as
shrinking profitability is a warning sign.
T3 = Earnings Before Interest and Taxes / Total Assets. This ratio shows how productive a
company in generating earnings, relative to its size.
T4 = Market Value of Equity / Book Value of Total Liabilities. This offers a quick test of how far
the company's assets can decline before the firm becomes technically insolvent (i.e. its liabilities
exceed its assets).
T5 = Sales/ Total Assets. Asset turnover is a measure of how effectively the firm uses its assets to
generate sales.

The original Z-score formula

Z = 1.2T1 + 1.4T2 + 3.3T3 + 0.6T4 + 0.99T6

The results indicated that, if the Altman Z-Score is close to or below 3, it is wise to do some
serious due diligence before considering investing. The Z-score results usually have the
following quot;Zonesquot; of interpretation:

Z Score below 2.99 -Safe Zones. The company is considered Safe based on the

financial figures only.

1.8 lt; Z lt; 2.99 -Grey Zones. There is a good chance of the company going
bankrupt within the next 2 years of operations.
Z below 1.80 -Distress Zones. The score indicates a high probability of distress
within this time period.

V. Conceptual Framework
Financial Statement

Financial Analysis

Financial Performance

Fundamental

Technical

Financial Ratios

Liquidity

Activity

Solvability

WC/TA

SALES/TA

MVOE/BVTL

Risk

Return

Bankruptcy Risk

Altman Method

Zaugren Method

(Z Score)

(Logit Model)

Analysed Directly
-----------------

Doesnt Analysed

Profitability

EBIT/TA

RE/TA

VI. Research Methodology

a. Scope And Limitation
The author limits the scope of research on the analysis of bankruptcy using the Altman
models are combined in a mathematical formula that is accurate in predicting corporate
bankruptcies. Analysis of the financial statements include the calculation and
interpretation of ratios. Financial ratios are used to assess the bankruptcy of the company
include liquidity ratios, profitability ratios, solvency ratios, and the ratio of the activity.
Calculation of the combination of the Altman method showed that the financial
statements of PT Indosat Tbk in the category of bankrupt or not. Period used to analyze
the company's financial statements are the five most recent period that is from 2009 to
2013. In conducting the analysis, the authors ignore the factors that do not affect the
financial condition of the company directly as government regulations, security situation,
political climate, social and cultural conditions, and others.

b. Method & Research Design

Method used in this research is descriptif method. Based on Traver (1978), This method
aims to describe the properties of something that is ongoing at the time of research was
done and check for the cause of a particular symptom. the type of method used is
descriptive case studies. the kind of detailed research on a particular object certain during
the in-depth and comprehensive enough to include the environment and condition of his
past. Furthermore, the researchers set out to discover the relationship between those
factors with each other.

c. Population, Sample and Sampling Techniques

in the study which became population are large companies in the telecommunications
industry, there are five companies. Also the leading company in every sector in Indonesia
Stock Exchange. This purpose for measure the financial

performance of

telecommunication industry compare with other industry. Determination of samples on

this research using a purposive sampling technique. As for the criteria of the company
that made the samples on this research are as follows:
1. Large companies in similar industries and listed on the Indonesia stock exchange,
taken from financial statements year 2009-2013.
2. To know the development of the telecommunications industry, the author compare
twith other industries as well. Taken samples of leading company coming into stock
LQ 45 from every sector/industry.

Then from the criteria expressed above can be obtained from the sample as many as five
telecommunication company , i.e. as follows :

Table 2. Telecommunication Companies and Leading Companies

From Other Sector

No

Kode
Emiten

Nama Perusahaan

Industry

Telekomunikasi
1

TLKM

Indonesia (Persero)

Sector

Sub Sector

Transportation,
Service

Tbk

Utilities &

Telecommunication

Infrastructure
Transportation,

ISAT

PT Indosat Tbk

Service

Utilities &

Telecommunication

Infrastructure
Transportation,
3

EXCL

XL Axiata Tbk

Service

Utilities &

Telecommunication

Infrastructure

BTEL

FREN

Bakrie Telecom
Tbk

Smartfren Telecom
Tbk

Transportation,
Service

Utilities &
Infrastructure
Transportation,

Service

Utilities &

JSMR

Jasa Marga Tbk

Service

Utilities &
Infrastructure

MNCN

ASRI

ASSI

Media Nusantara
Citra Tbk
PT Alam Sutera
Realty tbk
Astra International
Tbk

Telecommunication

Infrastructure
Transportation,

Telecommunication

Service

Service

Manufacture

High Way, Airport &

Harbour

Trade, service

Advertising, Printing

& investation

& Media

Property & Real Property & Real

Estate

Estate

A Variety Of

Automotive and

Industry

components

Indocement
10

INTP

Tunggal Perkasa

Basic industry

Manufacture

and chemistry

Tbk.
11

BBCA

12

INDF

13

AALI

BCA Finance Tbk

Indofood Sukses

Service

Finance

Makmur Tbk
Asta Agro Lestari
Tbk

Bank

Consumer

Manufacture

Cement

goods industries

Food & Baverages

Industrial
producer of raw Agricalture

Plantation

materials
Industrial

14

ADRO

Adaro Energy Tbk

producer of raw Mining

Coal Mining

materials
Sources : Indonesia Stock Exchange

d. Data, Data Resources & Statistical Analysis Tool

Data that used in this research is secondary data, the primary data has been further
processed and presented by both parties the primary data collectors or by other parties.
The secondary data in the form of financial statements that are download from the
official site of the company and Indonesia Stock Exchange. analysis tools are used in the
form of multiple regression. If needed, will be using the SPSS Analysis tool.

VII. Research Schedule

No

Kegiatan

Pembelian buku literatur

Penggantian batre laptop yang drop

Upgrade laptop

Ganti printer rusak

Pembelian kertas A4 80gr + Alat tulis

Pemasangan modem internet

Download laporan keuangan dan data

pendukung lainnya

Juni
1

Juli
4

Agustus

September

3 4 1 2 3 4 1

3 4

Bimbingan awal dan analisis

Olah data dan bimbingan lanjutan

10

Analisis lanjutan

No

Kegiatan

11

Analisis final dan perapihan laporan

12

Persiapan kelengkapan berkas untuk sidang tesis

13

Pedaftaran sidang

14

Sidang

15

Revisi jika diperlukan

16

Hard cover akhir & soft copy ke CD

17

Pendaftaran wisuda dan persyaratan lainnya

Oktober
1

November
4 1

Desember

3 4 1

2 3 4