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ICRMBEE 2019 IOP Publishing
IOP Conf. Series: Earth and Environmental Science 385 (2019) 012006 doi:10.1088/1755-1315/385/1/012006

Investigation on the Performance of Construction

Companies in Malaysia with Entropy-TOPSIS Model

W S Lam1,2,3, K F Liew1,2 and W H Lam1,2,3

1Department of Physical and Mathematical Science, Faculty of Science, Universiti Tunku Abdul Rahman,
Kampar Campus, Jalan Universiti, Bandar Barat, 31900 Kampar, Perak, Malaysia
2Centre for Mathematical Sciences, Universiti Tunku Abdul Rahman, Kampar Campus, Jalan Universiti,

Bandar Barat, 31900 Kampar, Perak, Malaysia

3Centre for Business and Management, Universiti Tunku Abdul Rahman, Kampar Campus, Jalan

Universiti, Bandar Barat, 31900 Kampar, Perak, Malaysia

Email: lamws@utar.edu.my

Abstract. Construction industry plays an important role to a nation due to its contribution to the
economic growth. The objective of this paper is to propose an Entropy-TOPSIS model in
evaluating and comparing the financial performance of the construction companies in Malaysia.
In this study, the listed construction companies in Malaysia are investigated using Entropy-
TOPSIS model. The results of this study show that ZECON, DKLS, GADANG, ECONBHD and
MELATI are ranked as top five construction companies based on the proposed model. This study
is significant because it helps to determine the financial performance of the construction
company as well as identify the importance of the decision criteria in the evaluation on the
financial performance of the construction companies in Malaysia with the proposed conceptual
framework based of entropy-TOPSIS model.

1. Introduction
In Malaysia, construction is one of the vital sectors that contribute to the economic growth of a nation.
Moreover, the government shows high interest to the construction industry as the construction industry
is an investment-led sector. Nowadays, the government strives to contract with the construction industry
in order to develop and provide the modern and advanced infrastructure that related to education,
transport, health and housing [1]. Therefore, the financial performance of the construction company in
Malaysia is investigated in this study based on the important financial ratios. TOPSIS is a useful and
practical model to rank the decision alternatives as well as select the best decision alternative [2].
TOPSIS model is seeking the shortest distance to the positive ideal solution (PIS), and the longest
distance from the negative ideal solution (NIS) for the best decision alternative [3, 4]. The entropy
weight method is one of the prevalent methods that used for weighing the criteria, whereas TOPSIS is
a popular decision tool that utilized to rank the alternatives.
Entropy-TOPSIS model has been studied by the past researchers in the field of safety evaluation [5],
cell phone evaluation [6], environment risk assessment [7], automobile [8], supplier selection [9], high-
tech industry [10], electric vehicle charging stations [11], manufacturing enterprises [12] and urban rail
transit system [13]. The objective of this paper is to propose a conceptual framework in evaluating and
comparing the financial performance of the construction companies in Malaysia with Entropy-TOPSIS
model. The significance of this study is to evaluate the financial performance of the construction
companies in Malaysia by considering the important financial ratios. The structure of this paper is

Content from this work may be used under the terms of the Creative Commons Attribution 3.0 licence. Any further distribution
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Published under licence by IOP Publishing Ltd 1
ICRMBEE 2019 IOP Publishing
IOP Conf. Series: Earth and Environmental Science 385 (2019) 012006 doi:10.1088/1755-1315/385/1/012006

organized as follows. In section 2, data and methodology of this study are discussed. Section 3 presents
the empirical results of this study. Finally, section 4 concludes the paper.

2. Data and Methodology

In this study, the financial performance of the construction companies listed in Malaysia stock market
is analysed [14]. The data of this study are obtained from the financial annual report of the construction
companies in year 2016. Table 1 displays the proposed conceptual framework to evaluate the
construction sector companies’ financial performance in Malaysia with Entropy-TOPSIS model.

Table 1. Proposed Conceptual Framework.

Level
Objective Evaluation on the construction companies’ financial performance

Decision criteria Current ratio (CR)

Debt to assets ratio (DAR)
Debt to equity ratio (DER)
Earnings per share (EPS)
Return on asset (ROA)
Return on equity (ROE)

Decision alternatives AZRB MELATI

BENALEC MERGE
BPURI MITRA
BREM MLGLOBAL
CRESBLD MUHIBAH
DKLS PESONA
ECONBHD PRTASCO
EKOVEST PSIPTEK
FAJAR PTARAS
GADANG SUNCON
GAMUDA SYCAL
GBGAQRS TRC
HOHUP TRIPLC
HSL TSRCAP
IJM VIZIONE
IKHMAS WCHEHB
KERJAYA WCT
KIMLUN ZECON
LEBTECH
Based on the past studies, there are total of six important financial ratios considered in this study. These
financial ratios consist of current ratio (CR), debt to assets ratio (DAR), debt to equity ratio (DER),
earnings per share (EPS), return on asset (ROA) as well as return on equity (ROE) [15-22]. Among these
financial ratios, DAR and DER are required to be minimized while CR, EPS, ROA and ROE are needed
to be maximized.
The Entropy-TOPSIS model consists of the following steps [2]. According to Shannon and Weaver [23],
the entropy weight method is utilized to determine the weights of the decision criteria.

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ICRMBEE 2019 IOP Publishing
IOP Conf. Series: Earth and Environmental Science 385 (2019) 012006 doi:10.1088/1755-1315/385/1/012006

Step 1: Determination of weight of the decision criteria via entropy weight method. Compute the
proportion “pij” of index value of alternative m under criteria n.
xij
pij = m
, i = 1, 2,..., m, j = 1, 2,..., n (1)
x
i =1
ij

Step 2: Computation of the entropy “ej” of alternative m.

m
e j = −k  p .ln( p ), j = 1, 2,..., n
i =1
ij ij (2)

Where
1
k=
ln(m)

Step 3: Computation of the entropy weight “wj” of alternative m.

1− ej
wj = n
, j = 1, 2,..., n (3)
 (1 − e )
j =1
j

Step 4: Construct the decision matrix ( ( xij ) mn ):

A m  n decision matrix is formed. m refers to the alternatives and n refers to the criteria.

Step 5: Normalize the decision matrix:

Normalization method is used to form a normalized decision matrix R = (rij )mn .

xij
rij = , i = 1,2,..., m, j = 1,2,..., n (4)
m

x
i =1
2
ij

Step 6: Calculate the weighted decision matrix (T):

The weighted normalized decision matrix is formed.

T = (t ) = (w r ) , i = 1,2,..., m (5)
ij m  n j ij m  n

Step 7: Determine the positive ideal solution (PIS) and negative ideal solution (NIS):
PIS = { min(t | i = 1,2,..., m) | j  J _ ,
ij
 max (t | i = 1,2,..., m) | j  J }  {t | j = 1,2,..., n},
ij + bj (6)
NIS = { max (t | i = 1,2,..., m) | j  J _ ,
ij
 min(t | i = 1,2,..., m) | j  J }  {t | j = 1,2,..., n},
ij + wj (7)

Where J + is associated with the positive impact criteria and J − is associated with the negative impact
criteria.

Step 8: Calculate the distance of each alternative from PIS and NIS:

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ICRMBEE 2019 IOP Publishing
IOP Conf. Series: Earth and Environmental Science 385 (2019) 012006 doi:10.1088/1755-1315/385/1/012006

n
d ib =  (t
j =1
ij − tbj ) 2 , i = 1,2,..., m (8)

n
d iw =  (t
j =1
ij − t wj ) 2 , i = 1,2,..., m (9)

Step 9: Obtain the coefficient of the relative closeness to the ideal solution (siw):

d iw
siw = ,0  siw  1, i = 1,2,..., m (10)
d ib + d iw

Step 10:
Select the decision alternatives with the highest value of siw. The larger the value of siw, the better the
decision alternatives.

3. Empirical Results
Figure 1 presents the weights of the financial ratios on the construction companies’ financial
performance evaluation in Malaysia.

EPS 0.2992
ROE 0.2190
ROA 0.1972
DER 0.1886
CR 0.0604
DAR 0.0357
0.00 0.05 0.10 0.15 0.20 0.25 0.30 0.35

Figure 1. Weights of financial ratios on the construction companies’ financial performance evaluation
in Malaysia.

As presented in Figure 1, the weights of financial ratios on the construction companies’ financial
performance evaluation in Malaysia have been determined by the entropy weight method. The EPS
gives the highest weights of 0.2992 followed by ROE (0.2190), ROA (0.1972), DER (0.1886), CR
(0.0604) and lastly DAR (0.0357). This indicates that EPS, ROE, ROA and DER are the most important
financial ratios on the construction companies’ financial performance evaluation in this study.
The PIS and NIS for each decision criterion are determined by using the equation (6) and (7)
respectively. Figure 2 shows the PIS and NIS for each decision criterion.

4
ICRMBEE 2019 IOP Publishing
IOP Conf. Series: Earth and Environmental Science 385 (2019) 012006 doi:10.1088/1755-1315/385/1/012006

0.2000
0.1764

0.1500 0.1404
0.1196

0.1000 0.0885

0.0500
0.0214 0.0094
0.0019 0.0032
0.0005 0.0001 0.0003 0.0002
0.0000
CR DAR DER EPS ROA ROE
PIS NIS

Figure 2. The PIS and NIS for each decision criterion.

As shown in Figure 2, the PIS that determined by the Entropy-TOPSIS model for CR, DAR, DER, EPS,
ROA and ROE are 0.0214, 0.0019, 0.0032, 0.1764, 0.0885 and 0.1404 respectively. On the other hand,
the NIS for CR, DAR, DER, EPS, ROA and ROE are 0.0005, 0.0094, 0.1196, 0.0001, 0.0003 and 0.0002
respectively.

Table 2. presents the empirical results of the overall performance and ranking of the construction
companies in Malaysia.

Table 2. Overall Performance and Ranking of the Construction Companies.

Company siw Rank
ZECON 0.794435 1
DKLS 0.561749 2
GADANG 0.495555 3
ECONBHD 0.487243 4
MELATI 0.467980 5
KIMLUN 0.453050 6
MITRA 0.439362 7
KERJAYA 0.435783 8
TRIPLC 0.435227 9
HOHUP 0.434927 10
MUHIBAH 0.419538 11
GAMUDA 0.417372 12
IJM 0.412251 13
SUNCON 0.385459 14
HSL 0.381459 15
PTARAS 0.372171 16
FAJAR 0.362631 17
BREM 0.355798 18
EKOVEST 0.354441 19
PESONA 0.342139 20
TRC 0.329608 21
PRTASCO 0.324532 22
LEBTECH 0.324400 23

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ICRMBEE 2019 IOP Publishing
IOP Conf. Series: Earth and Environmental Science 385 (2019) 012006 doi:10.1088/1755-1315/385/1/012006

VIZIONE 0.319137 24
MERGE 0.316246 25
GBGAQRS 0.313126 26
PSIPTEK 0.311180 27
IKHMAS 0.309185 28
TSRCAP 0.307799 29
BENALEC 0.307397 30
SYCAL 0.306031 31
MLGLOBAL 0.305399 32
WCT 0.296347 33
CRESBLD 0.286531 34
WCHEHB 0.272415 35
BPURI 0.190942 36
AZRB 0.075163 37

As shown in Table 2, the siw for each construction company and the overall ranking of companies are
determined by the proposed conceptual framework with Entropy-TOPSIS model. ZECON achieves the
first ranking among the construction companies with siw of 0.794435 which is the highest among the
companies. The siw for DKLS, GADANG, ECONBHD, MELATI, KIMLUN, MITRA and KERJAYA
are 0.561749, 0.495555, 0.487243, 0.467980, 0.453050, 0.439362 and 0.435783 respectively. As a
result, DKLS, GADANG, ECONBHD and MELATI obtained the second, third, fourth and fifth ranking
respectively. On the other hand, the siw for WCT, CRESBLD, WCHEHB, BPURI and AZRB are
0.296347, 0.286531, 0.272415, 0.190942 and 0.075163 respectively. As a result, these companies obtain
the lowest ranking in this study. This study can serve as reference to those investors who interested to
invest in the construction companies. In conclusion, ZECON is the best construction company in term
of financial performance and can be considered by the investors since ZECON obtains the first ranking
in the evaluation.

4. Conclusion

In this study, the conceptual framework has been proposed in evaluating the financial performance of
the construction companies in Malaysia with Entropy-TOPSIS model. The results of this study show
that ZECON, DKLS, GADANG, ECONBHD and MELATI are ranked as top five construction
companies based on the proposed model. Furthermore, EPS is the most important decision criterion that
considered in this study, followed by ROE, ROA, DER, CR and finally DAR. This study is significant
because it helps to determine the financial performance of the construction company as well as
determine the weights of the decision criteria in the evaluation on the financial performance of the
construction companies in Malaysia.

Acknowledgments
The authors express gratitude to Universiti Tunku Abdul Rahman (UTAR) for the sponsorship.

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IOP Conf. Series: Earth and Environmental Science 385 (2019) 012006 doi:10.1088/1755-1315/385/1/012006

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