# 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

_{ij}” of the nth criterion value of the mth alternative.

_{j}” of criterion n.

_{j}” of criterion n.

#### 2.3. Application of the Proposed Model in Portfolio Investment

- n is the number of assets,
- ${\sigma}_{ij}$ is the covariance between assets i and j,
- ${x}_{j}$ is the weight invested in asset j,
- ${x}_{i}$ is the weight invested in asset i,
- $\rho $ is a parameter representing the target rate of return required by an investor,
- ${r}_{j}$ is the expected return of asset j per period.

- ${r}_{p}$ is the portfolio mean return,
- ${x}_{j}$ is the weight invested in asset j,
- ${r}_{j}$ 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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**Table 1.**Recent state of the art on the financial performance evaluation based on different methods.

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 modelin 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 | $\mathit{D}+\mathit{R}$ | $\mathit{D}-\mathit{R}$ | |
---|---|---|---|

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 |

**Table 4.**Weighting normalization evaluation matrix of the companies by using the entropy–DEMATEL weights with respect to the financial ratios.

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 |

**Table 6.**The distance from the NIS and the distance to the PIS for each company using the entropy–DEMATEL weights.

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 | ${\mathit{s}}_{\mathit{i}\mathit{w}}$ | 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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## Share and Cite

**MDPI and ACS Style**

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

**AMA Style**

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 Style**

Liew, 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