Evaluating company's performance using multiple discriminant analysis: the case of Shariah compliance companies

There are many tools that can be used to measure/evaluate the performance of a company and one of the most popular tools is using the financial ratios. This paper will explore the use of a combination of two different techniques using the time series data of share and market prices collected from Shariah compliance companies and cross-sectional financial ratios data of Shariah compliance companies. Share prices from 201 Shariah compliance companies listed in the Bursa Malaysia stock exchange were collected from 2000 to 2005 with their respective 2005 financial ratios. The Jensen Alpha technique is employed to classify the Shariah compliance companies in the Main Board Bursa Malaysia into two categories, i.e. performing and non-performing. Next, multiple discriminant analysis (MDA) technique is employed in identifying the ratio(s) that significantly influence the performing and non-performing companies. The MDA result shows that shareholders fund/share or net tangible asset ratio could differentiate significantly the non-performing and performing Shariah compliance companies.MDA; multiple discriminant analysis; CAPM; capital asset pricing model; Jensen Alpha; Wilks' lambda; company performance; Shariah compliance companies; firm performance; Malaysia; stock market; financial ratios.

Performance of Shariah compliance companies in the plantation industry

Purpose – The purpose of this paper is to identify the performing and non-performing companies by using multiple discriminant analysis (MDA) and multiple regression and the ratios that could distinguish between the performing and the under-performing companies. Design/methodology/approach – First, the study applied the a Jensen technique to classify the Shariah compliance companies into performing and non-performing. Then, the results from the a Jensen technique with 20 financial ratios are applied to MDA in order to establish models that are used to identify non-performing and performing companies. Findings – The growth turnover ratio is the only ratio that could discriminate between the performing and non-performing companies in the plantation industry. Research limitations/implications – The paper only investigates a sector in the main board of Bursa Malaysia, which is the plantation industry. Future research may look into the whole Shariah counters in Bursa Malaysia. Practical implications – The paper could assist investors to evaluate and select an optimal investment portfolio. Originality/value – The paper applies multivariate analysis which does not depend only on one variable. Using the multivariate analysis it provides an alternative to establish models that discriminate between the performing and non-performing companies. This paper also investigates only the Shariah compliance counters in Bursa Malaysia.Benefit-cost ratio, Capital markets, Company performance, Malaysia, Multivariate analysis, Statistical methods of analysis