IDEAS home Printed from https://ideas.repec.org/a/gam/jmathe/v11y2023i2p397-d1033357.html
   My bibliography  Save this article

Decision Analysis on the Financial Performance of Companies Using Integrated Entropy-Fuzzy TOPSIS Model

Author

Listed:
  • Weng Hoe Lam

    (Department of Physical and Mathematical Science, Faculty of Science, Universiti Tunku Abdul Rahman, Kampar Campus, Jalan Universiti, Bandar Barat, Kampar 31900, Perak, Malaysia)

  • Weng Siew Lam

    (Department of Physical and Mathematical Science, Faculty of Science, Universiti Tunku Abdul Rahman, Kampar Campus, Jalan Universiti, Bandar Barat, Kampar 31900, Perak, Malaysia)

  • Kah Fai Liew

    (Department of Physical and Mathematical Science, Faculty of Science, Universiti Tunku Abdul Rahman, Kampar Campus, Jalan Universiti, Bandar Barat, Kampar 31900, Perak, Malaysia)

  • Pei Fun Lee

    (Department of Physical and Mathematical Science, Faculty of Science, Universiti Tunku Abdul Rahman, Kampar Campus, Jalan Universiti, Bandar Barat, Kampar 31900, Perak, Malaysia)

Abstract

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.

Suggested Citation

  • Weng Hoe Lam & Weng Siew Lam & Kah Fai Liew & Pei Fun Lee, 2023. "Decision Analysis on the Financial Performance of Companies Using Integrated Entropy-Fuzzy TOPSIS Model," Mathematics, MDPI, vol. 11(2), pages 1-18, January.
    • Handle: RePEc:gam:jmathe:v:11:y:2023:i:2:p:397-:d:1033357
    as

    Download full text from publisher

    File URL: https://www.mdpi.com/2227-7390/11/2/397/pdf
    Download Restriction: no
    File URL: https://www.mdpi.com/2227-7390/11/2/397/
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Lahmiri, Salim & Bekiros, Stelios, 2020. "Nonlinear analysis of Casablanca Stock Exchange, Dow Jones and S&P500 industrial sectors with a comparison," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 539(C).
    2. William Lefebvre & Gregoire Loeper & Huy^en Pham, 2020. "Mean-variance portfolio selection with tracking error penalization," Papers 2009.08214, arXiv.org, revised Sep 2020.
    3. Zdravka Aljinović & Branka Marasović & Tea Šestanović, 2021. "Cryptocurrency Portfolio Selection—A Multicriteria Approach," Mathematics, MDPI, vol. 9(14), pages 1-21, July.
    4. Sachs,Jeffrey & Schmidt-Traub,Guido & Kroll,Christian & Lafortune,Guillaume & Fuller,Grayson & Woelm,Finn, 2021. "Sustainable Development Report 2020," Cambridge Books, Cambridge University Press, number 9781108994651.
    5. Luciano Barcellos-Paula & Iván De la Vega & Anna María Gil-Lafuente, 2021. "The Quintuple Helix of Innovation Model and the SDGs: Latin-American Countries’ Case and Its Forgotten Effects," Mathematics, MDPI, vol. 9(4), pages 1-23, February.
    6. Plastun, Alex & Sibande, Xolani & Gupta, Rangan & Wohar, Mark E., 2021. "Evolution of price effects after one-day abnormal returns in the US stock market," The North American Journal of Economics and Finance, Elsevier, vol. 57(C).
    7. Sachs,Jeffrey & Schmidt-Traub,Guido & Kroll,Christian & Lafortune,Guillaume & Fuller,Grayson & Woelm,Finn, 2021. "Sustainable Development Report 2020," Cambridge Books, Cambridge University Press, number 9781108834209.
    8. Saraswat, S.K. & Digalwar, Abhijeet K., 2021. "Evaluation of energy alternatives for sustainable development of energy sector in India: An integrated Shannon’s entropy fuzzy multi-criteria decision approach," Renewable Energy, Elsevier, vol. 171(C), pages 58-74.
    9. Joanna Wieprow & Agnieszka Gawlik, 2021. "The Use of Discriminant Analysis to Assess the Risk of Bankruptcy of Enterprises in Crisis Conditions Using the Example of the Tourism Sector in Poland," Risks, MDPI, vol. 9(4), pages 1-11, April.
    10. Willliam Lefebvre & Gregoire Loeper & Huyên Pham, 2020. "Mean-variance portfolio selection with tracking error penalization," Working Papers hal-02941289, HAL.
    11. Markowitz, Harry, 2014. "Mean–variance approximations to expected utility," European Journal of Operational Research, Elsevier, vol. 234(2), pages 346-355.
    12. Sachs,Jeffrey & Kroll,Christian & Lafortune,Guillame & Fuller,Grayson & Woelm,Finn, 2021. "Sustainable Development Report 2021," Cambridge Books, Cambridge University Press, number 9781009098915.
    13. Markowitz, Harry M, 1991. "Foundations of Portfolio Theory," Journal of Finance, American Finance Association, vol. 46(2), pages 469-477, June.
    14. Larissa Batrancea, 2021. "The Nexus between Financial Performance and Equilibrium: Empirical Evidence on Publicly Traded Companies from the Global Financial Crisis Up to the COVID-19 Pandemic," JRFM, MDPI, vol. 14(5), pages 1-12, May.
    15. Suparak Suriyankietkaew & Suthep Nimsai, 2021. "COVID-19 Impacts and Sustainability Strategies for Regional Recovery in Southeast Asia: Challenges and Opportunities," Sustainability, MDPI, vol. 13(16), pages 1-28, August.
    16. Larissa Batrancea, 2021. "The Influence of Liquidity and Solvency on Performance within the Healthcare Industry: Evidence from Publicly Listed Companies," Mathematics, MDPI, vol. 9(18), pages 1-15, September.
    17. Leal, Marina & Ponce, Diego & Puerto, Justo, 2020. "Portfolio problems with two levels decision-makers: Optimal portfolio selection with pricing decisions on transaction costs," European Journal of Operational Research, Elsevier, vol. 284(2), pages 712-727.
    18. Jui-Te Chiang & Chei-Chang Chiou & Shuh-Chyi Doong & I-Fang Chang, 2020. "Research on the Construction of Performance Indicators for the Marketing Alliance of Catering Industry and Credit Card Issuing Banks by Using the Balanced Scorecard and Fuzzy AHP," Sustainability, MDPI, vol. 12(21), pages 1-24, October.
    19. Matilde Lafuente-Lechuga & Javier Cifuentes-Faura & Ursula Faura-Martínez, 2021. "Sustainability, Big Data and Mathematical Techniques: A Bibliometric Review," Mathematics, MDPI, vol. 9(20), pages 1-21, October.
    20. Horta, I.M. & Camanho, A.S. & Moreira da Costa, J., 2012. "Performance assessment of construction companies: A study of factors promoting financial soundness and innovation in the industry," International Journal of Production Economics, Elsevier, vol. 137(1), pages 84-93.
    21. Alexander Zorn & Michele Esteves & Ivo Baur & Markus Lips, 2018. "Financial Ratios as Indicators of Economic Sustainability: A Quantitative Analysis for Swiss Dairy Farms," Sustainability, MDPI, vol. 10(8), pages 1-20, August.
    22. Paul Tae-Woo Lee & Cheng-Wei Lin & Sung-Ho Shin, 2018. "Financial Performance Evaluation of Shipping Companies Using Entropy and Grey Relation Analysis," International Series in Operations Research & Management Science, in: Paul Tae-Woo Lee & Zaili Yang (ed.), Multi-Criteria Decision Making in Maritime Studies and Logistics, chapter 0, pages 219-247, Springer.
    23. Solangi, Yasir Ahmed & Longsheng, Cheng & Shah, Syed Ahsan Ali, 2021. "Assessing and overcoming the renewable energy barriers for sustainable development in Pakistan: An integrated AHP and fuzzy TOPSIS approach," Renewable Energy, Elsevier, vol. 173(C), pages 209-222.
    24. Fuentes González, Fabián & Webb, Janette & Sharmina, Maria & Hannon, Matthew & Braunholtz-Speight, Timothy & Pappas, Dimitrios, 2022. "Local energy businesses in the United Kingdom: Clusters and localism determinants based on financial ratios," Energy, Elsevier, vol. 239(PB).
    25. Yulida Safitri & Reni Diah Ningsih & Dwi Putri Agustianingsih & Vibhas Sukhwani & Akiko Kato & Rajib Shaw, 2021. "COVID-19 Impact on SDGs and the Fiscal Measures: Case of Indonesia," IJERPH, MDPI, vol. 18(6), pages 1-22, March.
    26. Huang, Wencheng & Shuai, Bin & Sun, Yan & Wang, Yang & Antwi, Eric, 2018. "Using entropy-TOPSIS method to evaluate urban rail transit system operation performance: The China case," Transportation Research Part A: Policy and Practice, Elsevier, vol. 111(C), pages 292-303.
    27. I. Emovon & W. O. Aibuedefe, 2020. "FUZZY TOPSIS Application in Materials Analysis for Economic Production of Cashew Juice Extractor," Fuzzy Information and Engineering, Taylor & Francis Journals, vol. 12(1), pages 1-18, January.
    28. Stefania Corsaro & Valentina De Simone & Zelda Marino & Salvatore Scognamiglio, 2022. "l 1 -Regularization in Portfolio Selection with Machine Learning," Mathematics, MDPI, vol. 10(4), pages 1-15, February.
    29. Sachs,Jeffrey & Kroll,Christian & Lafortune,Guillame & Fuller,Grayson & Woelm,Finn, 2021. "Sustainable Development Report 2021," Cambridge Books, Cambridge University Press, number 9781009102896, May.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Carmen García-Peña & Moneyba González-Medina & Jose Manuel Diaz-Sarachaga, 2021. "Assessment of the Governance Dimension in the Frame of the 2030 Agenda: Evidence from 100 Spanish Cities," Sustainability, MDPI, vol. 13(10), pages 1-21, May.
    2. Raghu Raman & Nava Subramaniam & Vinith Kumar Nair & Avinash Shivdas & Krishnashree Achuthan & Prema Nedungadi, 2022. "Women Entrepreneurship and Sustainable Development: Bibliometric Analysis and Emerging Research Trends," Sustainability, MDPI, vol. 14(15), pages 1-31, July.
    3. Antonia Asenjo & Verónica Escudero & Hannah Liepmann, 2024. "Why Should we Integrate Income and Employment Support? A Conceptual and Empirical Investigation," Journal of Development Studies, Taylor & Francis Journals, vol. 60(1), pages 1-29, January.
    4. Marie Stenton & Veronika Kapsali & Richard S. Blackburn & Joseph A. Houghton, 2021. "From Clothing Rations to Fast Fashion: Utilising Regenerated Protein Fibres to Alleviate Pressures on Mass Production," Energies, MDPI, vol. 14(18), pages 1-18, September.
    5. George H. Ionescu & Elena Jianu & Ioana C. Patrichi & Florin Ghiocel & Lili Țenea & Delia Iancu, 2021. "Assessment of Sustainable Development Goals (SDG) Implementation in Bulgaria and Future Developments," Sustainability, MDPI, vol. 13(21), pages 1-33, October.
    6. Miji Kwon & Eun-Mi Jang & Wonyoung Yang, 2022. "Mask-Wearing Perception of Preschool Children in Korea during the COVID-19 Pandemic: A Cross-Sectional Study," IJERPH, MDPI, vol. 19(18), pages 1-13, September.
    7. Yok-Yong Lee & Kim-Leng Goh, 2023. "The Happiness-Economic Well-Being Nexus: New Insights From Global Panel Data," SAGE Open, , vol. 13(4), pages 21582440231, October.
    8. Miguel Leiva-Brondo & Natalia Lajara-Camilleri & Anna Vidal-Meló & Alejandro Atarés & Cristina Lull, 2022. "Spanish University Students’ Awareness and Perception of Sustainable Development Goals and Sustainability Literacy," Sustainability, MDPI, vol. 14(8), pages 1-26, April.
    9. Alexandra-Maria Danilet, 2022. "Digital Technologies: Key Vector In Achieving Sustainable Development Goals," Annals - Economy Series, Constantin Brancusi University, Faculty of Economics, vol. 2, pages 58-63, April.
    10. Di Ye & Yufei Zhang & Qilun Li & Xue Zhang & Chunli Chu & Meiting Ju, 2022. "Assessing the Spatiotemporal Development of Ecological Civilization for China’s Sustainable Development," Sustainability, MDPI, vol. 14(14), pages 1-20, July.
    11. Qiezeng Yuan, 2021. "How to Restrain Regulatory Capture and Promote Green Innovation in China. An Analysis Based on Evolutionary Game Theory," Sustainability, MDPI, vol. 13(17), pages 1-20, August.
    12. Łukasz Sułkowski & Katarzyna Kolasińska-Morawska & Robert Seliga & Piotr Buła & Paweł Morawski, 2021. "Sustainability Culture of Polish Universities in Professionalization of Management," Sustainability, MDPI, vol. 13(24), pages 1-22, December.
    13. Mohammed Al-Surf & Ashraf Balabel & Mamdooh Alwetaishi & Ahmed Abdelhafiz & Usama Issa & Ibrahim Sharaky & Amal Shamseldin & Mosleh Al-Harthi, 2021. "Stakeholder’s Perspective on Green Building Rating Systems in Saudi Arabia: The Case of LEED, Mostadam, and the SDGs," Sustainability, MDPI, vol. 13(15), pages 1-25, July.
    14. Mauro D’Apuzzo & Azzurra Evangelisti & Rose Line Spacagna & Giuseppe Cappelli & Vittorio Nicolosi & Giuseppe Modoni & Luca Paolella, 2022. "Seismic Resilience Assessment Strategy for Social and Sustainability Impact Evaluation on Transportation Road Network: A Seismic Liquefaction-Induced Damage Application," Sustainability, MDPI, vol. 14(14), pages 1-17, July.
    15. Dongbing Li & Yao Chang & Zibibula Simayi & Shengtian Yang, 2022. "Multi-Scenario Dynamic Simulation of Urban Agglomeration Development on the Northern Slope of the Tianshan Mountains in Xinjiang, China, with the Goal of High-Quality Urban Construction," Sustainability, MDPI, vol. 14(11), pages 1-19, June.
    16. Agne Brandisauskiene & Loreta Buksnyte-Marmiene & Jurate Cesnaviciene & Ausra Daugirdiene & Egle Kemeryte-Ivanauskiene & Rasa Nedzinskaite-Maciuniene, 2021. "Connection between Teacher Support and Student’s Achievement: Could Growth Mindset Be the Moderator?," Sustainability, MDPI, vol. 13(24), pages 1-14, December.
    17. Miji Kwon & Wonyoung Yang, 2022. "Mask-Wearing Behaviors after Two Years of Wearing Masks Due to COVID-19 in Korea: A Cross-Sectional Study," IJERPH, MDPI, vol. 19(22), pages 1-18, November.
    18. Stasys Mizaras & Diana Lukmine, 2021. "Forest and Society’s Welfare: Impact Assessment in Lithuania," Sustainability, MDPI, vol. 13(10), pages 1-14, May.
    19. Edith Medina-Hernández & María José Fernández-Gómez & Inmaculada Barrera-Mellado, 2021. "Gender Inequality in Latin America: A Multidimensional Analysis Based on ECLAC Indicators," Sustainability, MDPI, vol. 13(23), pages 1-20, November.
    20. Antonio Somoza, 2023. "Voluntary sustainability assurance in small and medium‐sized entities: The role of country origin in Europe," Business Strategy and the Environment, Wiley Blackwell, vol. 32(1), pages 462-483, January.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:gam:jmathe:v:11:y:2023:i:2:p:397-:d:1033357. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: MDPI Indexing Manager (email available below). General contact details of provider: https://www.mdpi.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.