<![CDATA[Background and research gap - The direct and indirect determinants of financial distress remain underexplored among Sharia-compliant firms, particularly regarding profitability's mediating role in emerging capital markets. Purpose - This study examines the effects of liquidity, leverage and sales growth on financial distress, with profitability as a mediating variable, among firms listed on the Jakarta Islamic Index 30 (JII30). Design/methodology/approach - Using 105 firm-year observations from 21 firms during 2019-2023, this study employs fixed-effects panel regression, path analysis and Sobel tests using EViews 12. Financial distress is assessed using the Altman Z-score, while profitability is measured by return on assets (ROA). Key Findings - Liquidity and profitability positively influence the Z-score (p < 0.01), indicating reduced financial distress risk, whereas leverage negatively influences it (p < 0.01). Sales growth has no significant effect. Profitability significantly mediates the leverage-distress relationship (indirect effect = −0.042; p = 0.013), but not the liquidity or sales growth relationships (p = 0.231 and p = 0.325, respectively). Research limitations/implications - The JII30-specific sample limits generalisability, while Sobel-based mediation testing may insufficiently capture firm-level heterogeneity. Managers should prioritise liquidity, prudent leverage and asset profitability. Originality/value - This study distinguishes direct and profitability-mediated financial distress mechanisms in Sharia-compliant firms, providing emerging-market evidence that leverage affects financial resilience both directly and indirectly through profitability.]]>
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