The use of fuzzy logic and expert systems for rating and pricing firms: A new perspective on valuation

Purpose – The purpose of the paper is to focus on the rating, ranking and valuing of firms. Design/methodology/approach – Fuzzy logic and expert systems are used in order to provide a score for the firm(s) under consideration, representing the firm value-creating power. Findings – The fuzzy expert system introduced is capable of dealing with both quantitative and qualitative variables and integrates financial, managerial and strategic variables. A sensitivity analysis corroborates the model. Research limitations/implications – The system is apt to rate and rank firms within a sector. Some regression analysis can lead to a determined price for the target firm. Practical implications – The expert system may be used by rating agencies for ranking firms, and by financial analysts and potential buyers to furnish a price for acquisition. Originality/value – The use of a fuzzy expert system for ranking firms within a sector and pricing firms is a first attempt at an alternative way of measuring performance and value.