Financial Network Analysis on the Performance of Companies Using Integrated Entropy–DEMATEL–TOPSIS Model
Abstract
:1. Introduction
2. Materials and Methods
2.1. Research Development
2.2. Proposed Entropy–DEMATEL–TOPSIS Model
2.3. Application of the Proposed Model in Portfolio Investment
- n is the number of assets,
- is the covariance between assets i and j,
- is the weight invested in asset j,
- is the weight invested in asset i,
- is a parameter representing the target rate of return required by an investor,
- is the expected return of asset j per period.
- is the portfolio mean return,
- is the weight invested in asset j,
- is the expected return of asset j per period.
3. Empirical Results
4. Conclusions
Author Contributions
Funding
Acknowledgments
Conflicts of Interest
References
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Description | Field of Study | Method |
---|---|---|
Evaluate the financial performance of Islamic banks [12] | Bank | Least square method |
Investigate the financial performance of the business organization [13] | Business organization | Financial ratio analysis |
Measure the financial performance of the listed companies [14] | Listed companies in Indonesia Stock Exchange | Multiple regression analysis |
Analyze the financial performance of agriculture and agro-allied firms [15] | Agriculture and agro-allied firms | Multiple regression analysis |
Examine the financial performance of agricultural cooperatives [16] | Agricultural cooperatives | Regression analysis |
Assess the financial performance of the listed companies [17] | Listed companies in the New York Stock Exchange | Financial ratios analysis and linguistic analysis |
Measure the financial performance of oil and gas industry [18] | Oil and gas industry | Financial ratio analysis |
Analyze the financial performance of the automotive companies [19] | Automotive companies | Multiple regression analysis |
Assess the financial performance of banks [20] | Bank | Panel data regression analysis |
Evaluate the financial performance of manufacturing industries [21] | Manufacturing industries | Fuzzy AHP–VIKOR, Fuzzy AHP–TOPSIS |
Evaluate the financial performance of wealth management banks [22] | Bank | AHP–VIKOR |
Investigate the financial performance of tourism companies [23] | Tourism companies | TOPSIS |
Our study: Analyze the causal relationship of financial ratios towards the financial performance of the companies for portfolio investment. | Listed companies of DJIA (Integration of the proposed model in portfolio investment) | Integration of Entropy–DEMATEL–TOPSIS model in portfolio optimization |
Level | |
---|---|
Objective | Analysis on the Causal Relationship of Financial Ratios towards the Financial Performance of the Companies |
Decision Criteria | Earnings per share (EPS) |
(Financial Ratios) | Debt to assets ratio (DAR) |
Return on equity (ROE) | |
Current ratio (CR) | |
Return on asset (ROA) | |
Debt to equity ratio (DER) | |
Decision Alternatives | 3M (MMM) |
(Companies) | American Express (AXP) |
Amgen (AMGN) | |
Apple (AAPL) | |
Boeing (BA) | |
Caterpillar (CAT) | |
Chevron (CVX) | |
Cisco (CSCO) | |
Coca-Cola (KO) | |
Dow (DOW) | |
Goldman Sachs (GS) | |
Home Depot (HD) | |
Honeywell (HON) | |
IBM (IBM) | |
Intel (INTC) | |
Johnson & Johnson (JNJ) | |
JPMorgan Chase (JPM) | |
McDonald’s (MCD) | |
Merck (MRK) | |
Microsoft (MSFT) | |
Nike (NKE) | |
Procter & Gamble (PG) | |
Salesforce (CRM) | |
Travelers (TRV) | |
UnitedHealth (UNH) | |
Verizon (VZ) | |
Visa (V) | |
Walgreens Boots Alliance (WBA) | |
Walmart (WMT) | |
Disney (DIS) |
Financial Ratios | |||
---|---|---|---|
CR | 1.2382 | −1.0797 | Effect |
DAR | 0.8813 | −0.5976 | Effect |
DER | 0.9503 | 0.7026 | Cause |
EPS | 0.6794 | −0.1120 | Effect |
ROA | 0.6719 | −0.0355 | Effect |
ROE | 1.2733 | 1.1221 | Cause |
Company | EPS | DAR | ROE | CR | ROA | DER |
---|---|---|---|---|---|---|
MMM | 0.0280 | 0.0313 | 0.0192 | 0.0438 | 0.0317 | 0.0130 |
AXP | 0.0185 | 0.0249 | 0.0098 | 0.0285 | 0.0066 | 0.0245 |
AMGN | 0.0334 | 0.0384 | 0.0176 | 0.0839 | 0.0228 | 0.0202 |
AAPL | 0.0089 | 0.0241 | 0.0210 | 0.0325 | 0.0383 | 0.0096 |
BA | 0.0141 | 0.0143 | 0.2044 | 0.0304 | 0.0076 | 0.1233 |
CAT | 0.0178 | 0.0382 | 0.0090 | 0.0344 | 0.0091 | 0.0240 |
CVX | 0.0075 | 0.0126 | 0.0012 | 0.0285 | 0.0038 | 0.0025 |
CSCO | 0.0062 | 0.0183 | 0.0077 | 0.0625 | 0.0187 | 0.0048 |
KO | 0.0049 | 0.0415 | 0.0131 | 0.0275 | 0.0170 | 0.0197 |
DOW | 0.0054 | 0.0230 | 0.0007 | 0.0487 | 0.0001 | 0.0106 |
GS | 0.0609 | 0.0383 | 0.0039 | 0.0277 | 0.0019 | 0.0476 |
HD | 0.0244 | 0.0464 | 0.0627 | 0.0306 | 0.0466 | 0.0678 |
HON | 0.0215 | 0.0235 | 0.0112 | 0.0334 | 0.0202 | 0.0087 |
IBM | 0.0324 | 0.0280 | 0.0234 | 0.0296 | 0.0172 | 0.0234 |
INTC | 0.0116 | 0.0177 | 0.0093 | 0.0462 | 0.0298 | 0.0036 |
JNJ | 0.0161 | 0.0153 | 0.0086 | 0.0418 | 0.0206 | 0.0043 |
JPM | 0.0262 | 0.0186 | 0.0049 | 0.0278 | 0.0026 | 0.0221 |
MCD | 0.0214 | 0.0703 | 0.0191 | 0.0412 | 0.0328 | 0.0316 |
MRK | 0.0071 | 0.0239 | 0.0078 | 0.0338 | 0.0148 | 0.0081 |
MSFT | 0.0113 | 0.0237 | 0.0120 | 0.0670 | 0.0253 | 0.0075 |
NKE | 0.0067 | 0.0140 | 0.0128 | 0.0639 | 0.0342 | 0.0046 |
PG | 0.0124 | 0.0208 | 0.0077 | 0.0226 | 0.0188 | 0.0055 |
CRM | 0.0012 | 0.0093 | 0.0007 | 0.0235 | 0.0021 | 0.0024 |
TRV | 0.0325 | 0.0050 | 0.0047 | 0.0327 | 0.0061 | 0.0025 |
UNH | 0.0375 | 0.0203 | 0.0095 | 0.0181 | 0.0175 | 0.0068 |
VZ | 0.0153 | 0.0361 | 0.0265 | 0.0232 | 0.0170 | 0.0303 |
V | 0.0141 | 0.0173 | 0.0128 | 0.0451 | 0.0326 | 0.0042 |
WBA | 0.0120 | 0.0215 | 0.0057 | 0.0250 | 0.0131 | 0.0074 |
WMT | 0.0138 | 0.0191 | 0.0069 | 0.0214 | 0.0143 | 0.0057 |
DIS | 0.0166 | 0.0194 | 0.0072 | 0.0251 | 0.0190 | 0.0044 |
Financial Ratios | PIS | NIS |
---|---|---|
CR | 0.0839 | 0.0181 |
DAR | 0.0050 | 0.0703 |
DER | 0.0024 | 0.1233 |
EPS | 0.0609 | 0.0012 |
ROA | 0.0466 | 0.0001 |
ROE | 0.2044 | 0.0007 |
Company | Distance from the NIS | Distance from the PIS |
---|---|---|
MMM | 0.1281 | 0.1950 |
AXP | 0.1111 | 0.2127 |
AMGN | 0.1335 | 0.1940 |
AAPL | 0.1311 | 0.1987 |
BA | 0.2122 | 0.1458 |
CAT | 0.1076 | 0.2133 |
CVX | 0.1345 | 0.2216 |
CSCO | 0.1383 | 0.2076 |
KO | 0.1100 | 0.2131 |
DOW | 0.1261 | 0.2199 |
GS | 0.1021 | 0.2202 |
HD | 0.1017 | 0.1739 |
HON | 0.1284 | 0.2062 |
IBM | 0.1170 | 0.1958 |
INTC | 0.1377 | 0.2058 |
JNJ | 0.1358 | 0.2072 |
JPM | 0.1168 | 0.2160 |
MCD | 0.1038 | 0.2074 |
MRK | 0.1264 | 0.2132 |
MSFT | 0.1373 | 0.2015 |
NKE | 0.1439 | 0.2007 |
PG | 0.1299 | 0.2141 |
CRM | 0.1355 | 0.2252 |
TRV | 0.1418 | 0.2120 |
UNH | 0.1333 | 0.2097 |
VZ | 0.1048 | 0.2001 |
V | 0.1382 | 0.2019 |
WBA | 0.1272 | 0.2162 |
WMT | 0.1298 | 0.2154 |
DIS | 0.1320 | 0.2128 |
Company | Ranking | |
---|---|---|
MMM | 0.3965 | 10 |
AXP | 0.3432 | 26 |
AMGN | 0.4075 | 3 |
AAPL | 0.3975 | 9 |
BA | 0.5926 | 1 |
CAT | 0.3353 | 28 |
CVX | 0.3776 | 15 |
CSCO | 0.3998 | 8 |
KO | 0.3406 | 27 |
DOW | 0.3644 | 23 |
GS | 0.3168 | 30 |
HD | 0.3690 | 22 |
HON | 0.3838 | 13 |
IBM | 0.3739 | 19 |
INTC | 0.4008 | 6 |
JNJ | 0.3960 | 11 |
JPM | 0.3510 | 24 |
MCD | 0.3335 | 29 |
MRK | 0.3721 | 20 |
MSFT | 0.4052 | 5 |
NKE | 0.4175 | 2 |
PG | 0.3775 | 16 |
CRM | 0.3756 | 18 |
TRV | 0.4007 | 7 |
UNH | 0.3887 | 12 |
VZ | 0.3437 | 25 |
V | 0.4064 | 4 |
WBA | 0.3703 | 21 |
WMT | 0.3760 | 17 |
DIS | 0.3827 | 14 |
Optimal Portfolio | Value |
---|---|
Portfolio mean return | 0.0125 |
Portfolio risk | 0.0375 |
Portfolio performance ratio | 0.3347 |
DJIA index return (Benchmark) | 0.0096 |
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Liew, K.F.; Lam, W.S.; Lam, W.H. Financial Network Analysis on the Performance of Companies Using Integrated Entropy–DEMATEL–TOPSIS Model. Entropy 2022, 24, 1056. https://doi.org/10.3390/e24081056
Liew KF, Lam WS, Lam WH. Financial Network Analysis on the Performance of Companies Using Integrated Entropy–DEMATEL–TOPSIS Model. Entropy. 2022; 24(8):1056. https://doi.org/10.3390/e24081056
Chicago/Turabian StyleLiew, Kah Fai, Weng Siew Lam, and Weng Hoe Lam. 2022. "Financial Network Analysis on the Performance of Companies Using Integrated Entropy–DEMATEL–TOPSIS Model" Entropy 24, no. 8: 1056. https://doi.org/10.3390/e24081056
APA StyleLiew, K. F., Lam, W. S., & Lam, W. H. (2022). Financial Network Analysis on the Performance of Companies Using Integrated Entropy–DEMATEL–TOPSIS Model. Entropy, 24(8), 1056. https://doi.org/10.3390/e24081056