Using DEA and AHP for Ratio Analysis

Mohammad Sadegh Pakkar

Faculty of Management, Laurentian University, Sudbury, Canada.

DOI: 10.4236/ajor.2014.44026                

Abstract

This research proposes an integrated approach to the Data Envelopment Analysis (DEA) and Analytic Hierarchy Process (AHP) methodologies for ratio analysis. According to this, we compute two sets of weights of ratios in the DEA framework. All ratios are treated as outputs without explicit inputs. The first set of weights represents the most attainable efficiency level for each Decision Making Unit (DMU) in comparison to the other DMUs. The second set of weights represents the relative priority of output-ratios using AHP. We assess the performance of each DMU in terms of the relative closeness to the priority weights of output-ratios. For this purpose, we develop a parametric goal programming model to measure the deviations between the two sets of weights. Increasing the value of a parameter in a defined range of efficiency loss, we explore how much the deviations can be improved to achieve the desired goals of the decision maker.This may result in various ranking positions for each DMU in comparison to the other DMUs. An illustrated example of eight listed companies in the steel industry of China is used to highlight the usefulness of the proposed approach.

Keywords

Data Envelopment Analysis, Analytic Hierarchy Process, Ratio Analysis, Goal Programming

Conflicts of Interest

The authors declare no conflicts of interest.

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