The concept of corporate fundamental strength assessment model based on fuzzy logic

Abstract

The main aim of the paper is to present a theoretical concept of corporate fundamental strength assessment model based on combination of fuzzy methodology and financial ratios, which can be an alternative to dominant in the literature solutions based on taxonomic methodology. Due to covering a wider range of performance dimensions proposed model should give a more complete assessment of enterprise's business condition. On the other hand the use of fuzzy logic allows for significant flexibility, in comparison to multivariate comparative analysis methodology, and relatively easier adaptation of proposed solution to a particular specificity of enterprises.

The Use of Fuzzy Logic in the Enterprise’s Fundamental Strength Assessment

“…In the proposed solution [7], a company with a high fundamental strength should distinguish itself with permanent ability to generate good quality financial results and cash flows, high efficiency and operating performance, good financial condition and high level of development potential, both material and intangible, including human capital.…”

“…Assessment criteria in this solution were selected in three thematic areas -financial condition, business results and efficiency, development potential (Table I) -by analysing specific characteristics of many financial ratios used in the corporate financial analysis [2] [8], taking into account rather their quality/information than popularity as well as author's knowledge and years of practical experience in the field of fundamental analysis in Stockwatch.pl. This criteria within the structure of the model, which was published earlier [7], are supposed to be aggregated to more and more general modules with the final module assessing the enterprise's fundamental strength ending.…”

“…Additionally, to take into account within the individual input variables of the model their current level and lately tendency (2 years back), their calculation is supposed to be performed on the basis of weighted average formula [7]. This type of an approach makes, that the final enterprise's fundamental strength assessment is less susceptible to fluctuations caused by changes in the value of basic evaluation criteria.…”

“…In relation to the construction process of proposed fuzzy model [7] the Mamdani approach [10] was used and some assumptions were made regarding its individual stages:…”

“…Therefore, the main aim of the paper is to present an exemplary application of developed fuzzy model, which general concept was already published by the author [7].…”