Evaluation of Financial Risk Management of Digital Services Companies Using Integrated Entropy-Weight TOPSIS Model

Digital services companies help in the digitalization and transformation of the industry in driving Malaysia by advancing the economy of the country. However, digital services companies often face financial risks in terms of liquidity, solvency, efficiency, profitability, and operational risks. These risks increase the chances of failure and financial volatility, which put the companies at a serious disadvantage. This paper proposes an integrated Entropy-Weight TOPSIS model to analyze the financial risks of the listed digital services companies within Malaysia. The entropy method helps to prevent subjective weights by reflecting on information obtained from the financial reports of the companies. This study also provides an analysis to show possible improvements for the companies. The interest coverage ratio (ICR), which measures the capability to settle interest on debt, shows the highest weight followed by the basic indicator approach (BIA) and return on asset (ROA) based on the entropy weighting method. In addition, CLOUDPT, ITMAX, and MSNIAGA are ranked as the top three digital services companies that give the highest relative closeness to the ideal solution. The results help the risk managers to identify the criteria that caused the greatest financial risk in digital services companies to formulate targeted strategies to improve the companies’ financial health.