Journal of Economics, Finance and Accounting Studies (JEFAS) ISSN: 2709-0809 DOI: 10.32996/jefas Journal Homepage: www.al-kindipublisher.com/index.php/jefas Page | 81 Analysis of Capital Adequacy Ratio (CAR), Non-Performing Loan (NPL), and Net Interest Margin (NIM) in Predicting Financial Distress in Financial Reports of PT. Bank Rakyat Indonesia (Persero) Tbk Julie Abdullah 1 Wahyudin Hasan 2 , and Sri Yulan Dusa 3 123 Department of Accountancy, Faculty of Economy, Universitas Gorontalo, Gorontalo, Indonesia Corresponding Author: Julie Abdullah, E-mail: julieabdullah123@gmail.com ARTICLE INFORMATION ABSTRACT Received: August 09, 2020 Accepted: October 01, 2021 Volume: 3 Issue: 2 DOI: 10.32996/jefas.2021.3.2.9 The present work investigates and predicts the condition of financial distress in PT Bank Rakyat Indonesia (persero) Tbk, Unit Wonosari. All data, comprising quantitative and qualitative data, were analyzed based on the financial ratio. These data were retrieved from observation and direct interviews. Based on the data analysis, the hypothesis stating that PT Bank Rakyat Indonesia (persero) Tbk Unit Wonosari did not experience financial distress was accepted. This is because the results of the measurement of CAR, NPL, and NIM of the bank are in good condition (CAR and NIM fell under a very good category, and NPL fell under the good category). It can be concluded that PT Bank Rakyat Indonesia (persero) Tbk Unit Wonosari did not experience financial problems. KEYWORDS CAR, NPL, NIM, Financial Distress 1. Introduction 1 An economic system is integral to the progress of a nation. For this reason, it is safe to say that the economic system determines the prosperity of the people in the country. It is also worth noting that a poor economic system has led to the bankruptcy of companies, which begins with financial distress. The emergence of many bankruptcy prediction models remarks the anticipative measures and early warning systems of financial distress. Further, the models can serve as the media to identify everything required to improve the condition to mitigate bankruptcy. Such a condition encourages any early warning measures to prevent more complex problems regarding economic conditions. The early detection of bankruptcy enables companies, investors, creditors (financial institutions), and government to prepare any measurement to prevent financial crisis. Previous studies have found that CAR (capital adequacy ratio) negatively influenced financial distress, and the hypothesis was refuted; NPL (non-performing loan) positively influenced financial distress in banking companies, and the hypothesis was accepted; NIM (net interest margin) positively affected financial distress in banking companies and the hypothesis was rejected; ROE (return on equity) negatively influenced financial distress and the hypothesis was accepted; BOPO (Operating Expense to Operating Income) positively influenced financial distress in banking companies and the hypothesis was refuted; LDR (loan to deposit ratio) positively contributed to financial distress in banking companies and the hypothesis was rejected (Rahmania and Hermanto, 2014). Similar to the previous studies, the present work relied on performance ratio or banking ratio, ranging from capital adequacy ratio (CAR), non-performing loan (NPL), to net interest margin (NIM) to check the financial health of the bank. Capital adequacy ratio (henceforth, CAR) refers to the measures of banks' capital to cover the current and upcoming risks. Another indicator in checking the bank's health is a non-performing loan or NPL. Business risk is often referred to as the quality of earning assets. Riyadi (2006) describes credit risks as potential risks where a bank borrower is unable to pay the debt and the interest. The quality of credit is determined by its collectability, i.e., credit quality is determined by its collectability, interest payments, and loan principal, as well as the ability of the debtor (the state of the debtor's business). The standard ratio of NPL allowed by Bank Indonesia is 5% at maximum. If the NPL exceeds 5%, the companies' finances are not in good condition. Published by Al-Kindi Center for Research and Development. Copyright (c) the author(s). This open access article is distributed under a Creative Commons Attribution (CC-BY) 4.0 license