Application of Technique for Order Preference by Similarity to Ideal Solution Multi-Criteria Decision-Making Method for Financial Performance Evaluation: A Case Study of Services Sector in Malaysia

This paper aims to evaluate financial performance of companies from services sector in Malaysia using TOPSIS multi-criteria decision-making method. Financial data of 10 companies in 2017 are retrieved from DataStream. For many years, financial ratios are used to analyse financial performance of a companies. However, some studies indicate that traditional ratio analysis is insufficient to measure firm’s financial performance. Thus, this paper applies Technique for order Preference by Similarity to ideal Solution (TOPSIS) to obtain a more comprehensive result. This TOPSIS approach which involves seven step utilizes financial ratios such as current ratio, acid test ratio, debt ratio, debt to equity ratio, return on asset (ROA), return on equity (ROE) and earnings per share (EPS) as criteria to evaluate the companies’ financial performance. The ultimate finding of this study is the ranking of the companies which also suggest the investor on which companies to invest based on their financial performance. The results from this research are found to be consistent with the analysis by various investment agencies. Thus, this approach can be used as an alternative to the traditional valuation that has been used before.