Applying the todim fuzzy method to the valuation of Brazilian banks

Abstract

We propose the use of multicriteria decision analysis for the valuation of Brazilian banks. In order to model uncertainties, we combine the use of multicriteria decision analysis with fuzzy mathematics. We specifically modify the method Tomada de Decisão Interativa Multicritério (TODIM) to incorporate fuzzy numbers, resulting in a methodology we call TODIM Fuzzy. A six-year data set of audited financial statements is considered to illustrate the use of the methodology when analyzing the six largest (net worth) banks operating in Brazil. Several sensitivity analyses are conducted to illustrate how small changes in the inputs can alter the results obtained with the original TODIM and the TODIM Fuzzy. The numerical illustrations have displayed consistent and robust results when the scores of the six banks are computed and the institutions are compared among themselves.