Comparison of Proposals of Transformation of Nominants into Stimulants on the Example of Financial Ratios of Companies Listed on the Warsaw Stock Exchange

Abstract

In case of linear ordering, it is important to determine the character of the variables describing the examined objects. When the set of variables contains nominants next to stimulants and destimulants, there is need to transform nominants into stimulants in order to have comparable variables. The paper focuses on the formulas of transformation of nominants with a recommended range of values into stimulants with the range of [0; 1]. Because during the linear ordering of some companies due to their financial condition, it turned out that after the transformation of nominant indicators with a recommended range of values, the obtained standardized stimulants for companies with values outside the range of recommended values did not always order companies in accordance with the expectations resulting from the original values of these indicators. Therefore, the aim of the study was to compare selected formulas of transformation of nominants into stimulants and to indicate those transformations on the basis of which the order of companies before and after the transformation was characterized by greater consistency. The Authors also proposed modifications for selected formulas which allow to maintain this consistency. The data on two financial indicators: current ratio and debt ratio which are considered in the literature as nominants with the recommended range of values were used. The data on the ratios come from Notoria Serwis and concern companies from the Machinery industry sector listed on the Warsaw Stock Exchange in 2016.