Determining the Ranking of the Companies Listed in TSE by the Studied Variables and Analytic Hierarchy Process (AHP)

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1 Advances in Environmental Biology, () Cot, Pages: - AENSI Journals Advances in Environmental Biology Journal home page: Determining the ing of the Companies Listed in TSE by the Studied Variables and Analytic Hierarchy Process (AHP) Amir Masoud Jahani, Fereshteh soofi and Mohammad-reza zalghadr-nasab Master of Accounting, Young Researchers and Elite Club, Borujerd Branch, Islamic Azad University, Borujerd, Iran, Master of Accounting, Borujerd Branch, Islamic Azad University, Borujerd, Iran. Master of Accounting, Borujerd Branch, Islamic Azad University, Borujerd, Iran. ARTICLE INFO Article history: Received September Received in revised form October Accepted October Available online November Key words: The Evaluation of FinancialPower, Portfolio, AHP Model ABSTRACT The fluctuations of stock price and decision to invest in the companies listed in TSE require some instruments to evaluate the financial power of the above companies. One of the instruments of evaluating the financial power and decision to invest in the companies is using analysis of the financial ratios of the companies. To do this, the hypothesis of the study was designed regarding the ranking of the companies listed in TSE by the studied variables and AHP process. The study population was selected among the companies selected in TSE. All the member companies with the following inclusion criteria were considered: They were listed in TSE since. Financial statements were presented during to to the stock market. The study population companies were not included in article of trading law (non-broke) The study companies were not one of the banks, financial institutions and investment. Thus, there were companies listed in TSE. This study was a descriptivecorrelation method in terms of method. The study was done as deductive-inductive. The results of the hypothesis test showed that ranking the companies listed in TSE is possible by AHP. To review the reliability, the above model was tested by the data during -. Thus, top companies were selected for investment. AENSI Publisher All rights reserved. INTRODUCTION Decision making in stock purchase is complex, because some variables are considered in this case. Some variables as capital rate of return, earnings per share, price-to earnings per share and risk taking. As some variables should be considered for decision making a set of the variables, a multi-criteria decision making method should be used. AHP method is one of the multi-criteria decision making methods and this is possible. Based on this method, the best alternatives are defined. The main purpose in portfolio management is helping the investor in selecting the optimal portfolio. Thus, the analysis of the present and the past of the companies and identification of the most efficient companies helped most of the investors. Selecting the optimal portfolio is one of the important issues in the past and present and by the researches done, some models to determine the portfolio are presented and the shortcomings of each one were determined and another model was replaced. One of the most fundamental problems of the presented models is ignoring the multiple dimensions and indices for final assessment of stock portfolio and this shortcoming makes the reliability of the results of the study as problematic. Another criticism of these models is the lack of identification of the reasons of supporting or rejecting a company in optimal portfolio. In the studies performed regarding the identification of the effective factors on determining optimal portfolio, many indices as capital return rate, earnings per share, price-to earnings ratio per share and risk taking and identification and in various models, were used to evaluate stock portfolio. One of the new methods of evaluation of the efficiency of the companies is AHP method as a multicriteria method for decision making. In this method, by some input and output variables, the efficiency of the companies with available information is calculated and the companies are ranked and the information is used to select the optimal portfolio among the best companies. AHP process made the combination of quality and quantity criteria at the same time possible. This process is used in paired comparisons of the variables and decision making criteria. The paired comparisons allowed the decision makers that without any external Corresponding Author: Amir Masoud Jahani, Master of Accounting, Young Researchers and Elite Club, Borujerd Branch, Islamic Azad University, Borujerd, Iran amir.jahani@yahoo.com

2 Amir Masoud Jahani disturbance only focus on the comparison of two criteria or two alternatives. In addition, valuable information was provided and improved the reasonability of decision making process. Statement of the problem: In rapid growth of technology and extensive changes made the economy prosperous. The competition of the economic enterprises limited the access to profitability and increased the bankruptcy probability. Thus, financial decision making is more strategic than before. AHP method is one of the most comprehensive methods designed for decision making with multiple indices to be used for decision making or selecting an alternative among various alternatives of decision making based on the indices being determined by the decision maker. Today, AHP model is turned into an applied and reliable model. The reasons date back to AHP structure. A great spectrum of AHP applications indicate this reality that AHP has a tree structure and most of the complex issues are solved by it.based on the applied methods in ranking in this study, univariate method is not used and other complex methods called multi-criteria methods are used. The multi-criteria methods are developed in the past years. But its significance and its applications namely in financial sciences and economical fields are taken into attention in the recent decades and it is used in financial and economic models. The main nature of the multi-variate methods is due to this reality that the review of various phenomenon showed that the changes of a phenomenon are due to the changes of two, three or more variables. Thus, they are called multi-variate methods.ahp method provides a strong math basis for ranking the companies listed in TSE and optimal portfolio is presented among the companies with high ranks in terms of efficiency. Presenting optimal portfolio is one of the tools by which various beneficiary groups including the investors, credit providers, etc can estimated the future condition of the companies and take the best decisions by adequate knowledge about the future of the companies. Any research is done to achieve special aim and this aim manifested itself in the framework of the statement of the problem and it is defined (Khaki, Qolamreza,, ). This research was done to fulfill the following purpose: Purpose: ing the companies listed in TSE by AHP method. Keywords and abbreviations: Financial markets: Financial market is an established organization in which the transfer of money from the people or the organizations faced with the surplus of the financial resources to people and cash applicant organizations (resources). It is evident that in this market, most of the loan givers are consisting of the households and the majority of money applicants are economical enterprises and government. Markowitz model assumptions: The assumptions of Harry Markowitz are divided into two groups: a. The assumptions of the model about the market b. The assumptions of the model about investor a. The assumptions about market: The market is assumed efficient. In other words, All investors have access to the general information. All take price not making price There are no transportation costs Tax is zero b. The assumptions about the investor The investor is logical, restraining risk and asks for more wealth. The investors consider desirability the same as return and it is the return of weighted average portfolio of the returns. The investors take their decisions based on risk and return. The distribution of return probability is symmetry. The investors consider risk as the standard deviation of the returns. The investors have single-period time horizon. The investors have homogenous expectations. The interpretation of the assumptions of Markowitz Model Regarding the assumptions of labor market, it is observed that such hypotheses are not fulfilled. In some countries, the market is not efficient at all; this doesn t mean that the model has no application. But it can be used as guidance and index and creates a structure and model in the mind that should be used. Regarding the hypotheses of the investor, as we say the investors are logical, it means that they prefer more to less. They averse risk, they don t accept risk without any reason and they required more return for more risk, not the fact that they don t invest and they need wealth, they move on the peak of the curve, where desirability is maximum. The assumptions of the capital market theory The investors take price not make price

3 Amir Masoud Jahani The investors tried to go to the efficient frontier of Markowitz and act in accordance with it. In other words, the investors try to increase their money and they have one-period time horizon. They averse risk and take their decision based on expected rate of return and return standard deviation. The investors have access to general information. Inflation tax and transportation costs are zero. Capital market is considered. The investments can be divided infinitely. The investors infinitely can lend or borrow in risk-free interest rate o If these assumptions are added to Markowitz model, the investors invest in risk-free securities and risky securities, the efficient frontier turns into capital market from the face of curve. This right line is capital market line. This line starts from risk-free interest rate and tangents to point M with efficient Markowitz frontier. Point M is the market portfolio and is including all the existing stocks in the market. Research purpose: The general purpose of this study is ranking the companies listed in TSE by AHP method. Study question: Is it possible to rank the companies listed in TSE by the studied variables and AHP method? Study hypotheses: Is it possible to rank the companies listed in TSE by the studied variables and AHP method. MATERIALS AND METHODS This study was descriptive-correlation in terms of method. The study was done as deductive-inductive. The review of literature and theoretical framework were deductive via library studies, internet and articles and data collection for supporting or rejecting the hypotheses was inductive. Data collection: The data in the present study was collected from financial statements, notes attached to financial statements and the initial data of stock board (collected in Tadbirpardaz, Rahavard Novin and data bank of statistics of stock company). Study population: The study population of the present study was selected among the companies listed in TSE. All the members companies of study population meeting the following criteria were included in the study: They were listed in TSE since. Financial statements were presented during to to the stock market. The study population companies were not included in article of trading law (non-broke) The study companies were not one of the banks, financial institutions and investment. companies were listed in TSE in this study. Study scope: The study scope in terms of time, place and subject was as: Subject scope: The subject scope of the present study was including the review of the financial ratios of the studied models by the information in data bank of TSE. Time scope: The time scope of the study was the financial statements data during to. Place scope: The study place was the companies listed in TSE. Hypotheses analysis: The data were analyzed in various steps:

4 Amir Masoud Jahani First step: Making the model (hierarchy): To rank the companies listed in TSE, at first the AHP method is as following: Fig. : The selection of the best companies for investment (portfolio) Second step: The matrix of paired comparison of the return of one year and calculation of the weights: The matrix of the paired comparison between the -year return of the companies listed in TSE and the weights were calculated (Table ). Table : The calculation of the average weights in each row in terms of the return of one year X -. X. X -.. X -. X. X -. X X. X -. X. X -. X. X -. X -. X -. X X -. X -. X -. X -. X X X X X X X X X X

5 Amir Masoud Jahani X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X Third step: The formation of the matrix of the paired comparison of -year return and calculation of the related weights: The matrix of the paired comparisons in the three-year return of the companies listed in TSE and the weights are calculated (Table ). Table : The calculation of the average weights in each row in terms of two-year return X -.. X -. X. X -. X. X -.. X -.. X X. X -. X. X -. X. X -. X. X -. X. X -. X. -. X. -. X. X -. X. X -. X. X -.. X -.. X -. X. X -. X. X -. X. X -. X. -.. X -. X. X -. X. X -. X -. X -. X X X X X -. X -. X -. X -. X -. X -. X -. X X X X X X X X X X X X X X X X X X X X

6 Amir Masoud Jahani Fourth step: The formation of paired comparison of five-year return and the calculation of the weights: The matrix of paired comparisons between the -year return of the companies listed in TSE and the weights were calculated (Table ). Table : The calculation of average weights in each row in terms of -year return X -. X. X -. X. X -.. X X. X -. X. X -. X. X -. X. -. X. -. X. X X. X -. X. X -. X. -. X. -. X. X -. X. X X -. X. -.. X - X. X X. X -.. X -. X. X -. X. X -.. X -. X. X -. X. X -. X. X -. X. X -. X X -. X -. X -. X X X X X X X X X X X X X X X X X X X X X X Fifth step: Formation of the matrix of paired comparison of EPS and the calculation of the weights: The matrix of paired comparisons between EPS of the companies listed in TSE and the related weights are calculated (Table ). Table - The calculation of the average weights in each row in terms of EPS X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X,,,,,,,,,,,,,,,,,,

7 Amir Masoud Jahani X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X Sixth step: The formation of the matrix of paired comparison of Beta and the calculation of the weights: The matrix of paired comparisons between the beta index of the companies listed in TSE and the weights were calculated (Table ). Table : The calculation of the average weights in each row in terms of beta. X -. X. X -. X. X -. X. X X -. X. -.. X -. X -. X. -. X. X -. X. X X. X X. X -. X. X -. X. X -. X. X -.. X -.. X -.. X -.. X -. X. X -. X. X -. X. X -. X. X -. X. X -. X. X X -.. X. X. X. X. X. X X X X X X X X X X X X X X X X X X X X X X X X X Seventh step: The formation of the matrix of paired comparison of Sigma and the calculation of the weights: The matrix of paired comparisons between the sigma index of the companies listed in TSE and the weights were calculated (Table ).

8 Amir Masoud Jahani Table : The calculation of the average weights in each row in terms of sigma. X -.. X -.. X -. X. X X. X X -. X. X -. X. X -. X. X -. X. -. X. X -. X. X -. X. X -.. X -.. X -. X. X -.. X -. X. X -. X. X -. X. X. X X. X X. X. X. X. X. X. X. X. X. X.... X.. X.. X.. X... X X X X X X X X X X X X X X X X X X X X X X X X Eights step: The final priority of the companies: The matrix of main paired comparisons between the companies listed in TSE and the weights were calculated (Table ). Table : The final prioritization of the companies X.. X.. X. X. X. X. X. X. X. X. X. X. X... X. X. X. X. X. X. X. X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X

9 Amir Masoud Jahani X X X X X X X X X X X X X X X X X X X Conclusion: As it was said, among the above companies first companies were efficient. The general evaluation of the results of hypothesis test: The results of the test showed that ranking the companies listed in TSE is possible by AHP method. Some recommendations of the results of the study: a. The investors and credit providers are recommended to use the results of the present study to evaluate the companies listed in TSE and take decision on purchasing stock and investment in the companies. b. Identification of the effective variables on the efficiency of the companies listed in TSE and using them in the above model. The recommendations for further study: The review of using adjusted financial statement based on current values for presenting optimal portfolio Reviewing the use of some methods as TOPSIS and neural artificial networks for optimal portfolio The review of the usefulness of using the optimal portfolio presentation by the investment companies and banks during the assessment of purchasing stock and giving credit. Study limitation: Due to the lack of access to exact data of financial statements of the companies outside the stock market and non-uniformity of financial statements of the companies, they are not studied in this research. REFERENCE [] Edwards, R.D., J. Magee,. Technical analysis of stock trades, spring, field mass. [] Miller, M.H., F. Modigliani, P. Dividend,. Growth and the valuation of shares, journal of business,. [] Sharpe, W.,. A simplified model for portfolio analysis, Journal Management science,. [] Azar, A.,. Applied decision making (M,A,D,M approach). Tehran: Negah Danesh publication. [] Asqarpour, M.J.,. Multi-criteria decision making. Tehran. Tehran University publications. [] Jahankhani, A., A. Parsayian,. Stock exchange market. Tehran: Management school publications. Tehran University. [] Qodsipour, S.H.,. AHP process. Fifth edition. Tehran. Amirkabir Industrial University publications.