Complex assessment of essential financial indicators in corporate governance

Abstract

The corporate governance foremost is determined by the expected competitive advantage-oriented changes as well as by the modern and effective management techniques that stimulate the sustainable growth. The complex evaluation of the efficiency of corporation performance may be also indicated as prerogative when reasoning the strategic business decisions and corporate strategy in general. The research aims to generalize the major principles for evaluation of a whole of financial indicators and to construct the adequate assessment models. The framework for complex assessment according to essential financial indicators, identified for a particular corporation and oriented essentially to the multiple criteria evaluation methodology, is presented below. For certain companies from the selected industry (their target group), as basic evaluation criteria, such indicators as profitability, asset and investments return, leverage and liquidity levels, as well as cash flows equilibrium, dividend yield - may be accepted. It is expedient to detail and purposeful group these indicators. For these purposes, Simple Additive Weighting (SAW) method of quantitative evaluation by multiple criteria is suggested. According to the adequate evaluation models, an overall index is determined with respect to the significance of the primary indicators, estimated by expert way. In this assessment process, both the primary criteria (i.e. financial indicators) and the indexes of their groups are also covered. The complex assessment of financial indicators reflecting corporate governance effectiveness is presented for Lithuanian corporation case to illustrate the application of the analytical research results. Such quantitative assessment process is particularly relevant under conditions of dynamic changes of the surrounding macro factors affecting corporate strategy. It is characterized by adaptability (according to the whole of evaluation criteria for an assessment in specific conditions); and it is applicable to the complex investigation of the quality and effectiveness of corporate governance. The algorithmic procedures of proposed assessment process may be incorporated into business management and strategic decisions support system.