Measuring the Relative Importance of Financial Ratios: An Integrated Approach of Fuzzy DEMATEL and Fuzzy ANP

Abstract

Fuzzy set Theory presents a mathematical framework in which it’s possible to systematically deal with ambiguous phenomena in human systems and decision making processes. This theory also decreases the need for accurate
measurements and permits the gradual assessment of the membership of  elements in a set. This paper uses the fuzzy set theory to measure the relative importance of financial ratios for assessment and selection of stocks. First, 39 financial ratios are categorized to 6 groups. Then, the integrated approach of fuzzy DEMATEL (Decision Making Trial and Evaluation Laboratory) and fuzzy ANP
(Analytical Network Process) are used to determine the importance of each group of financial ratios, importance of each financial ratio to each other, and finally importance of each financial ratio to the group that it’s in is measured.
To measure the weight of each ratio a questionnaire is used that is completed by financial experts. The results show that the most important financial ratio is costrelated indicators. Current ratios, Capital Structure ratios, Profitability ratios, Activity ratios, and Investment ratios have less importance, respectively decreasing.