The Application of Altman Revised Z-Score Four Variables and Ohlson O-Score as A Bankruptcy Prediction Tool in Small and Medium Enterprise Segments in Indonesia

Abstract

The small-medium business segment is currently growing in Indonesia, contributing more than one-fifth of Indonesia's Gross Domestic Product, making this segment is very potential to be developed more. Domestic and foreign banks view this small-medium business segment as a promising segment, and the majority of banks in Indonesia compete to distribute business loans to this segment. However, amid promising prospects, this segment also has its own challenges where the ratio of national non-performing loans exceeds the ratio of non-performing loans to all loans disbursed. This study aims to examine the reliability of the Altman Z-Score and Ohlson O-Score methods as predictors of bankruptcy in Small-Medium Enterprise segment companies in Indonesia and its reliability statements in this segment in reflecting the company's real conditions as input data for analysis prediction of corporate bankruptcy. The research data were financial report data from companies that were debtors of the Small-Medium Enterprise segment at Bank Mandiri. The results showed that the Z-Score calculation results were able to predict bankruptcy with an accuracy of 51.8%, 37.4%, 36.3%, and 11.4% for one, two, three, and four years before the bankruptcy. Meanwhile, Ohlson O-Score provided better accuracy results of 73.6%, 43.2%, and 58.5% for one, two, and three years before the bankruptcy. Based on these results and also interviews with the internal parties of the bank, it may be concluded that the financial statements for Small-Medium Enterprise segment companies, in general, have not been reliable enough to reflect the company's condition in real terms.