The determination of pre-financial distress among PN17 company in Malaysia

This study investigates the limited-researched area of how pre-financial distress impacts the financial performance of firms. Specifically, it uses financial ratios as indicators to examine this relationship for companies listed under Practice Note 17 (PN17) on Bursa Malaysia. The study employs panel data analysis on a sample of 10 listed PN17 companies, focusing on the eight-year period (2010 to 2017) before the companies were classified as PN17, with the purpose of identifying the symptoms of pre-financial distress. The dependent variable for the study is the total debt ratio. The four financial ratios used as independent variables are: Return on Asset (ROA), Time Interest Earned (TIE), Working Capital Turnover, and Current Ratio. Using the Ordinary Least Square (OLS) model and Panel Regression analysis, the study aimed to determine the most optimal financial ratio influencing the total debt ratio. The findings indicate that only two of the independent variables demonstrated a significant relationship with the total debt ratio, while the other two showed an insignificant relationship.