A decision model to predict profitability using revised Thompson–Thrall profit ratios in DEA with an application to South Asian banks

Many researchers in the past have addressed the issue of profitability of banks from different perspectives using financial ratios and decision models. Thompson et al. (1995) introduced linked‐cone (LC) profit ratios with assurance regions (AR) in data envelopment analysis. In this paper, we revise LC–AR and show a contrast between Thompson–Thrall’s and revised profit ratios. We propose a decision model to classify banks as profit‐makers, loss‐makers or neither, when ‘market prices’ that form AR are not available and hence LC–AR profit ratios do not exist. We demonstrate how this method works for a set of South Asian banks.