Decision Analysis on the Financial Performance of Companies Using Integrated Entropy-Fuzzy TOPSIS Model
Sustainable economic development plans have been shattered by the devastating COVID-19 crisis, which brought about an economic recession. The companies are suffering from financial losses, leading to financial distress and disengagement from sustainable economic goals. Many companies fail to achieve...
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MDPI AG
2023-01-01
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| Series: | Mathematics |
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| Online Access: | https://www.mdpi.com/2227-7390/11/2/397 |
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| author | Weng Hoe Lam Weng Siew Lam Kah Fai Liew Pei Fun Lee |
| author_facet | Weng Hoe Lam Weng Siew Lam Kah Fai Liew Pei Fun Lee |
| author_sort | Weng Hoe Lam |
| collection | DOAJ |
| description | Sustainable economic development plans have been shattered by the devastating COVID-19 crisis, which brought about an economic recession. The companies are suffering from financial losses, leading to financial distress and disengagement from sustainable economic goals. Many companies fail to achieve considerable financial performances, which may lead to unachieved organizational goal and a loss of direction in decision-making and investment. According to the past studies, there has been no comprehensive study done on the financial performance of the companies based on liquidity, solvency, efficiency, and profitability ratios by integrating the entropy method and fuzzy technique for order reference based on similarity to the ideal solution (TOPSIS) model in portfolio investment. Therefore, this paper aims to propose a multi-criteria decision-making (MCDM) model, namely the entropy-fuzzy TOPSIS model, to evaluate the financial performances of companies based on these important financial ratios for portfolio investment. The fuzzy concept helps reduce vagueness and strengthen the meaningful information extracted from the financial ratios. The proposed model is illustrated using the financial ratios of companies in the Dow Jones Industrial Average (DJIA). The results show that return on equity and debt-to-equity ratios are the most influential financial ratios for the performance evaluation of the companies. The companies with good financial performance, such as the best HD company, have been determined based on the proposed model for portfolio selection. A mean-variance (MV) model is used to validate the proposed model in the portfolio investment. At a minimum level of risk, the proposed model is able to generate a higher mean return than the benchmark DJIA index. This paper is significant as it helps to evaluate the financial performance of the companies and select the well-performing companies with the proposed model for portfolio investment. |
| first_indexed | 2024-03-09T11:46:38Z |
| format | Article |
| id | doaj.art-8e43d0d5e70f4ea2ba49294921ada90a |
| institution | Directory Open Access Journal |
| issn | 2227-7390 |
| language | English |
| last_indexed | 2024-03-09T11:46:38Z |
| publishDate | 2023-01-01 |
| publisher | MDPI AG |
| record_format | Article |
| series | Mathematics |
| spelling | doaj.art-8e43d0d5e70f4ea2ba49294921ada90a2023-11-30T23:21:37ZengMDPI AGMathematics2227-73902023-01-0111239710.3390/math11020397Decision Analysis on the Financial Performance of Companies Using Integrated Entropy-Fuzzy TOPSIS ModelWeng Hoe Lam0Weng Siew Lam1Kah Fai Liew2Pei Fun Lee3Department of Physical and Mathematical Science, Faculty of Science, Universiti Tunku Abdul Rahman, Kampar Campus, Jalan Universiti, Bandar Barat, Kampar 31900, Perak, MalaysiaDepartment of Physical and Mathematical Science, Faculty of Science, Universiti Tunku Abdul Rahman, Kampar Campus, Jalan Universiti, Bandar Barat, Kampar 31900, Perak, MalaysiaDepartment of Physical and Mathematical Science, Faculty of Science, Universiti Tunku Abdul Rahman, Kampar Campus, Jalan Universiti, Bandar Barat, Kampar 31900, Perak, MalaysiaDepartment of Physical and Mathematical Science, Faculty of Science, Universiti Tunku Abdul Rahman, Kampar Campus, Jalan Universiti, Bandar Barat, Kampar 31900, Perak, MalaysiaSustainable economic development plans have been shattered by the devastating COVID-19 crisis, which brought about an economic recession. The companies are suffering from financial losses, leading to financial distress and disengagement from sustainable economic goals. Many companies fail to achieve considerable financial performances, which may lead to unachieved organizational goal and a loss of direction in decision-making and investment. According to the past studies, there has been no comprehensive study done on the financial performance of the companies based on liquidity, solvency, efficiency, and profitability ratios by integrating the entropy method and fuzzy technique for order reference based on similarity to the ideal solution (TOPSIS) model in portfolio investment. Therefore, this paper aims to propose a multi-criteria decision-making (MCDM) model, namely the entropy-fuzzy TOPSIS model, to evaluate the financial performances of companies based on these important financial ratios for portfolio investment. The fuzzy concept helps reduce vagueness and strengthen the meaningful information extracted from the financial ratios. The proposed model is illustrated using the financial ratios of companies in the Dow Jones Industrial Average (DJIA). The results show that return on equity and debt-to-equity ratios are the most influential financial ratios for the performance evaluation of the companies. The companies with good financial performance, such as the best HD company, have been determined based on the proposed model for portfolio selection. A mean-variance (MV) model is used to validate the proposed model in the portfolio investment. At a minimum level of risk, the proposed model is able to generate a higher mean return than the benchmark DJIA index. This paper is significant as it helps to evaluate the financial performance of the companies and select the well-performing companies with the proposed model for portfolio investment.https://www.mdpi.com/2227-7390/11/2/397entropyfuzzyTOPSISmulti-criteria decision makingfinancial ratioranking |
| spellingShingle | Weng Hoe Lam Weng Siew Lam Kah Fai Liew Pei Fun Lee Decision Analysis on the Financial Performance of Companies Using Integrated Entropy-Fuzzy TOPSIS Model Mathematics entropy fuzzy TOPSIS multi-criteria decision making financial ratio ranking |
| title | Decision Analysis on the Financial Performance of Companies Using Integrated Entropy-Fuzzy TOPSIS Model |
| title_full | Decision Analysis on the Financial Performance of Companies Using Integrated Entropy-Fuzzy TOPSIS Model |
| title_fullStr | Decision Analysis on the Financial Performance of Companies Using Integrated Entropy-Fuzzy TOPSIS Model |
| title_full_unstemmed | Decision Analysis on the Financial Performance of Companies Using Integrated Entropy-Fuzzy TOPSIS Model |
| title_short | Decision Analysis on the Financial Performance of Companies Using Integrated Entropy-Fuzzy TOPSIS Model |
| title_sort | decision analysis on the financial performance of companies using integrated entropy fuzzy topsis model |
| topic | entropy fuzzy TOPSIS multi-criteria decision making financial ratio ranking |
| url | https://www.mdpi.com/2227-7390/11/2/397 |
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