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Financial
Financial performance evaluation performance
of companies listed on Tehran evaluation

Stock Exchange
A negative data envelopment analysis approach 885
Ali Karimi and Masoud Barati Received 1 December 2016
Revised 29 April 2017
Department of Industrial Management, Islamic Azad University, Accepted 2 May 2017
Najafabad Branch, Najafabad, Iran

Abstract
Purpose – This paper aims to evaluate the financial performance of companies listed on Tehran Stock
Exchange by using negative data envelopment analysis (DEA) approach.
Design/methodology/approach – First, the financial metrics for performance evaluation were
extracted and then filtered based on the experts’ opinions. Upon choosing the appropriate financial measures,
the financial information of 72 companies selected from four automotive, pharmaceutical, petrochemical and
cement industries were collected, and the criteria values were also measured. The financial performance of
selected companies was assessed using negative data bounded adjusted measure in the DEA, and efficient
and inefficient companies were identified. Finally, the efficient companies were ranked using Andersen and
Petersen model.
Findings – The required analysis was conducted, and the financial performance of selected companies
listed on Tehran Stock Exchange was evaluated. There were 58 efficient companies with a performance value
of 1; 14 companies became inefficient because the efficiency size was less than 1; therefore, reference units
were also introduced to the managers for efficiency of inefficient companies.
Originality/value – The aim of this study was to identify the required financial criteria and to determine
an appropriate model for performance evaluation based on negative DEA. The findings can help shareholders
to identify efficient companies and make the optimal portfolio accordingly; the managers of inefficient
companies can also take the proper reforming actions to improve efficiency.
Keywords Tehran Stock Exchange, Financial performance evaluation,
Negative data envelopment analysis
Paper type Research paper

Introduction
With the huge development that the world has faced in recent years, the existence of
performance evaluation systems is unavoidable. One important question in the context
of performance evaluation is “how has a unit utilized the available resources and what was
its performance in the course of a study period?” (Emami meybodi, 2006). Performance of the
financial sector is one of the most important effective parameters in performance evaluation
(Azar and Motameni, 2005). In fact, optimal economical and financial performance in any
organization depends on how efficiently its financial department works (Mirghafoori et al.,
2013).
In large organizations, where there is various stakeholders and a risk of conflict of International Journal of Law and
Management
interests, many groups evaluate the performance and use evaluation results in their Vol. 60 No. 3, 2018
pp. 885-900
decision-making. In this respect, financial approaches and evaluation criteria used for © Emerald Publishing Limited
1754-243X
evaluation purposes are considerably important. Some believe that there is no ideal DOI 10.1108/IJLMA-12-2016-0145
IJLMA approach for assessment and evaluation of financial performance of organizations; in other
60,3 words, no evaluation approach is capable of determining the real value of an organization.
For example, one performance evaluation factor is the assets return ratio. This factor has
long been considered by different investors. However, it is affected by other uncontrollable
management factors, such as economic, political and cultural conditions (Azarbayejani et al.,
2011). Because of problems associated with assets return ratio, other performance evaluation
886 criteria, such as economic value added (EVA), were proposed; however, these measures have
their own weaknesses. EVA can easily be manipulated. While it is generally calculated
through accrual accounting methods, it might be negatively affected by other methods such
as the depreciation calculation procedure or prediction of bad debts so that the EVA is
falsely shown to be higher (Azarbayejani et al., 2011).
On the other hand, companies’ ranking and provision of optimal portfolio is one of the
controversial issues in the economic sector. Many evaluation systems have so far been
proposed for ranking. Each evaluation system has been replaced by a newer and better one.
One important problem of performance evaluation systems is ignoring the nature of ranking
criteria. This problem poses serious doubts on the evaluation results. Another problem with
these systems is that they do not give any reasons for rejection or acceptance of a company
in the optimal portfolio (Khajavi et al., 2005).
Edirisinghe and Zhang (2008) used the following financial ratios to estimate a company’s
financial ability; they also used the correlation between these criteria and real stock returns
in their study:

profitability (return on capital, return on assets, net profit margin and earnings per
share);

operational efficiency (including receivable accounts turnover, inventory turnover
and assets turnover);

liquidity (current ration, quick ratio and debt-to-equity ratio);

leverage (leverage ratio, total debt-to-asset ratio and total debt-to-equity ratio);

company’s perspective (price to earnings ratio and market value to book value
ratio); and

growth (growth rate of earnings, growth rate of net profit and growth rate of
earnings per share).

Lim et al. (2014) also used the cross-efficiency matrix of data envelopment analysis (DEA)
for evaluation and determination of a portfolio of the most efficient companies listed on the
Korean Stock Exchange. The input and output criteria of the study were classified into the
two following groups:
(1) assets turnover, inventories turnover, receivable accounts turnover, quick ratio,
current debt-to-equity ratio, leverage ratio, total debt-to-equity ratio and debts
payment ratio; and
(2) return on capital, return rate of assets, net profit margin, earning per share, growth
rate of income, growth rate of net profit and growth rate of earning per share.

It is inferred from the above studies that only a limited number of approaches have been
used for evaluation of financial performance of companies. A recommended solution is to
combine different approaches so that economic decisions can be made more consciously.
There is also a need for a set of verified criteria that take into account various aspects, such
as limitations of activities and the possibility of having access to resources, as much as
possible. In addition, an appropriate performance evaluation system, which considers Financial
growth and development of capacities, available counseling services, optimization of performance
activities, identification of weakness and strengths, organizational excellence and the nature
of performance assessment indicators, is required.
evaluation
Proper evaluation of financial performance requires that investors and managers choose
proper approaches and measures, make better decisions and take actions that do not endanger
the interests of other stakeholders. The goal of this study is to identify such financial criteria and
to propose an appropriate model for performance evaluation based on the DEA approach. This 887
will help shareholders to identify highly efficient companies and create an optimum portfolio. In
addition, managers can take proper reforming actions to improve the efficiency of their
organization. According to the above, this study intends to answer the following questions:
Q1. How to evaluate financial performance of companies listed on Tehran Stock
Exchange through DEA?
Q2. What are the appropriate financial criteria for financial performance evaluation of
companies listed on Tehran Stock Exchange?
Q3. How to rank the companies listed on Tehran Stock Exchange through DEA?
The rest of the paper is organized in four parts. A review of the related literature and a
discussion of DEA-based performance evaluation methods are presented in the second
section. The third section discusses the method. The findings of the study, including
ranking of efficient companies and identified reference units for inefficient companies, are
discussed in the fourth section. Finally, the paper is concluded with the results of the study
in the fifth section.

Theoretical background
In this section, first, the existing financial criteria of performance evaluation are introduced
and then the DEA-based performance evaluation system is analyzed.
Many studies have tried to identify the appropriate financial criteria for performance
evaluation, which both ensure the consistency a company’s activity with interests of its
stakeholders and managers and form a basis for making economic decisions. In general,
previous studies focus on the following approaches and factors:

Financial performance evaluation approaches

Accounting approaches
In this approach, the values inserted in financial statements such as profit, earning
per share, operational cash flows, return on assets and return on shareholders’
equity are used for performance evaluation (Ansari and Karimi, 2008).

Economic approaches
These approaches rely on economic concepts. Performance of an enterprise is
evaluated based on the profitability of company assets, return rate and used capital
cost rate. EVA, adjusted EVA and market value added are included in this group
(Anvari Rostami et al., 2004).

Hybrid approaches
The hybrid approach uses accounting and market information for performance
evaluation. Examples are Tobin’s Q ratio and price-to-earnings ratio (Malekian and
Asghari, 2006).
IJLMA
Financial management
60,3 These approaches are based on financial management theories, such as capital
assets pricing model and risk and return concepts. They mainly focus on
determining the extra return of each share (Ansari and Karimi, 2008).

888 Financial performance evaluation factors

Activity ratios
One of the goals of financial managers is to determine how to allocate a
company’s resources to different assets. This factor shows how a company
invests on its earning assets (Ertugrul and Karakasoglu, 2009). Total assets
turnover, inventory turnover and receivable accounts turnover are activity
ratios calculated as follows:

net sales
Total assets turnover ratio ¼
total assets

cost price of sold product

Inventory turnover ratio ¼
average inventory during year

net sales
Receivable accounts turnover ratio ¼
accounts receivable

Liquidity ratios
Liquidity ratios indicate a company’s ability to satisfy its short-term obligations in
due date (Foster, 1978). It also shows its ability for making a profit in the succeeding
month (Moyer et al., 1992). In addition to quick ratio and current ratio, Huang et al.
(2015) used the income earned from a company’s net activities to the company’s
earnings ratio in DEA-based performance evaluation. Liquidity ratios are calculated
using the following equations:

inventory  current asset

Quick ratio ¼
current debt

current asset
Current ratio ¼
current debt

Cash earned from a company’s net activities to the company’s earnings ratio
cash earned from company’s net activities
¼
company earnings

Leverage ratios
The leverage ratio shows a company’s ability to fulfill its short-term and long-term
obligations (Ertugrul and Karakasoglu, 2009). Interest coverage ratio, total debt-to-
equity ratio and debt ratio are calculated as follows:
 profit before interest and tax Financial
Interest coverage ratio ¼
interest fee performance
evaluation
total debt
Total debt to equity ratio ¼
equity
total debt 889
Debt ratio ¼
total assets

Profitability ratios
Profitability ratios assess a company’s ability to create sources of income compared
to its costs during a specific period of time (Foster, 1978). A company’s desirable
performance in the past ensures the shareholders that the company will be
successful in gaining profit from new sources (Namazi and KHajavi, 2005).
Profitability ratios are calculated as follows:

net profit after deduction of tax

Earnings per share ¼
number of total shares

net profit after deduction of tax

Return on assets ratio ¼
total assets

net profit after deduction of tax

Return on equity ratio ¼
shareholder equity

net profit after deduction of tax

Net profit margin ratio ¼
net sales

Economic value added = net operational profit after tax deduction – capital cost rate
(per cent)  total used cost

Growth ratios
Growth is a metric that has always been considered by the capital market and
shareholders (Namazi and KHajavi, 2005). Growth ratios show a company’s
status in its working industry (Ertugrul and Karakasoglu, 2009). Sustainable
growth rate is the maximum growth rate at which a company can grow without
having to sell any new shares or borrow money – maintaining debt-to-equity
ratio – it is, in fact, equal to debt-to-equity ratio. Other growth ratios are
calculated as follows:
sales of current year  sales of last year
Growth rate of sales ¼
sales of last year

earning per share of current year  earning per share of last year
Growth rate of earnings per share ¼
earnings per share of last year
IJLMA return on equity * indivisible profit rate
Sustainable growth rate ¼
60,3 1  return on equity * indivisible profit rate

Perspective ratios
Perspective ratios evaluate the stock market price of companies. Tobin’s Q ratio was
proposed by James Tobin, the economist winner of Nobel award from Yeil
890 University. He assumed that a company’s assets must be replaced by its market
value. So, if the company’s market value exceeds its asses (ratio more than 1), this
company could use its assets optimally. In this case, the stock value is more than the
intrinsic value. However, when a company’s market value is lower than its assets
value (ratio between 0 to 1), it means that the company has failed to use its assets
optimally (Brainard and Tobin, 1977). Perspective ratios are calculated as follows:

price per share

Price to earnings ratio ¼
earning per share

stock market value þ stock book value

Simple Tobin’s Q ratio ¼
book value of total assets at the year end

Most of the previous studies have focused on identifying the appropriate criteria for
financial performance evaluation through DEA. Table I shows the financial performance
criteria and the researchers who used them in their studies.

Negative data envelopment analysis

The tool for DEA is a boundary nonparametric performance evaluation model that is used
for the measurement of relative efficiency of decision-making units. In the DEA performance
evaluation system, not only efficient units are specified but also an analysis of inefficient
units is provided.
Modeling real-world problems in DEA necessitates using negative numbers. For
instance, the growth rate of earnings per share in a company might in some cases assume a
negative value. Accordingly, several models have so far been proposed for evaluating the
performance of decision-making units that can work with negative data. One such model is
the boundary adjusted model from the family of collective models introduced by Cooper
et al. (2011). This model can be applied in all types of returns to scale; it gives a performance
measure with desirable features.
To create a new measure that can deal with negative data, lower-sided ranges were
defined for inputs, and upper-sided ranges were defined for outputs.

uþ
ro ¼ y r  yro ; r ¼ 1; 2; . . . ; s

lio ¼ xio  x i ; i ¼ 1; 2; . . . ; m

It is observed that the left-sided range for each input depends only on the lower bound of
that input and on the DMU being rated, while the upper-sided range for each output depends
only on the upper bound of that output and on the DMU being rated. For this reason, Cooper
et al. named the new measure bounded adjusted measure. Furthermore, because of the
minimum value that exists in the maximum change of output auxiliary variable, lio and uþro
 Indicator
Financial
Row Evaluation criteria Researchers type performance
evaluation
1 Assets turnover ratio Edirisinghe et al., Lim et al., Huang et al. Input/
output
2 Inventory turnover ratio Edirisinghe et al., Lim et al., Huang et al. Input/
output
3 Receivable accounts turnover ratio Edirisinghe et al., Lim et al., Huang et al. Input 891
4 Quick ratio Edirisinghe et al., Lim et al., Huang et al. Input
5 Current ratio Edirisinghe et al., Lim et al., Huang et al. Input
6 Cash earned from company’s net Huang et al. Input
activities to company earnings
ratio
7 Interest coverage ratio Sehat, Edirisinghe et al., Lim et al. Input
8 Total debt-to-equity ratio Edirisinghe et al., Lim et al. Input
9 Debt ratio Safari et al., Ebrahimi et al., Sehat, Edirisinghe Input/
et al., Lim et al., Huang et al. output
10 Earnings per share ratio Khajavi et al., Edirisinghe et al., Lim et al. Output
11 Return on assets ratio Safari et al., Mirghafoori et al., Ebrahimi et al., Output
Jamali, Sinaei, Edirisinghe et al., Lim et al.,
Huang et al.
12 Return on equity ratio Mirghafuri et al., Jamali, Sinaei, Edirisinghe Output
et al., Lim et al.
13 Net profit margin ratio Sinaei, Rahnemay Roodposhti et al., Edirisinghe Output
et al., Lim et al.
14 EVA Output
15 Growth rate of sales Edirisinghe et al., Lim et al. Output
16 Growth rate of earnings per share Rahnemay Roodposhti et al., Edirisinghe et al., Output
Lim et al.
17 Sustainable growth rate Output Table I.
18 Price to earnings ratio Khajavi et al., Ketabi et al., Jamali, Edirisinghe Input/ Financial
et al. output performance
19 Tobin’s Q ratio Output evaluation criteria

are always positive for negative data. Therefore, there is constant improvement in the status
of inputs and outputs.
The measure of inefficiency is evaluated through the following additive model:
!
X
m
s–io Xs
sþ
Max þ ro

i¼1
ðm þ sÞlio r¼1
ðm þ sÞuþ
ro

St:
X
m
g i xij þ s
io ¼ xio ; i ¼ 1; 2 . . . m;
j¼1

X
m
g i yrj  sþ
io ¼ yio; r ¼ 1; 2 . . . S;
j¼1
IJLMA X
m
g j ¼ 1; j ¼ 1; 2 . . . N;
60,3 j¼1

g j  o; 8j;

892
s þ
io  o ; sro  o8i; r:

The corresponding efficiency measure is defined as:

!
X
m
s–* Xs
sþ*
Gbam ¼ 1  io
 þ ro

i¼1
ðm þ sÞlio r¼1
ðm þ sÞuþ
ro

The bounded adjusted model with desired positive and negative data has the following
characteristics:
0 # Gbam # 1 (p1);
DMUo () Gbam = 1 is fully efficient. Gbam = 0 () DMUo is fully inefficient (p2);
Gbam has reliability over change of unit (p3);
Gbam is uniform (p4);
Gbam has reliability over transfer (p5).

It is important to note that in the DEA model, if there is no significant difference between
numbers of decision units and inputs and outputs, most of the decision units will become
efficient. Empirically, the number of studied decision units compared to the total number of
inputs and outputs must follow the equation below:
Number of studied decision units  3 (number of inputs þ number of outputs)
In 1993, Anderson and Petersen proposed a model for ranking decision-making units. In
their model, the efficient decision-maker unit is omitted from production possibility group,
and the model is re-applied for the other decision units. Unlike efficient units, omitting
inefficient units will not affect the efficiency boundary. The difference between the efficiency
value obtained from Anderson–Petersen model and number 1, shows the decrease in input
or increase in output. Therefore, the performance of decision-making units with a higher
efficiency value is higher than that of other efficient units (Andersen and Petersen, 1993).

Methodology
The present study aims to identify the appropriate financial criteria for performance
evaluation, ranking and selection of the most efficient companies listed on Tehran Stock
Exchange through DEA. The study is an applied research and descriptive in nature and was
conducted as a case study. Data were collected through survey.
First, the related literature was reviewed. Financial criteria of performance evaluation
were identified by studying the major books and articles in the field. From these, the
redundant, those overlapped with other metrics and the ones that could be combined into a
single factor were omitted. To evaluate the financial performance of companies listed on
Tehran Stock Exchange, first, the data related to financial criteria of each company in 2014
were collected using their financial statements, and with reference to www.viacodal.ir and
the website of Tehran Stock Exchange Technology Management Co. (www.tsetmc.com).
Afterwards, the values related to each financial metric were calculated in Microsoft Excel.
Financial performance evaluation was then performed using the boundary adjusted model Financial
for negative values via LINDO version 11. Finally, both efficient and inefficient companies performance
were identified, and efficient companies’ ranking was performed using Anderson–Petersen
model. Figure 1 shows the above phases.
evaluation
DEA evaluates performance by feeding real data from decision-making units into
optimization models. The conceptual model and financial metrics of performance evaluation
used in this study are shown in Figure 2.
Research population consists of companies listed on Tehran Stock Exchange. 893
Manufacturing industries having more than 18 subsidiary companies are the condition
of performance evaluation model. Sample size is 72 companies from four industrial
sections (automotive, pharmaceutical, petrochemical and cement). These companies are
not financial intermediaries (banks, investment funding and leasing institutes) or
service companies. Their stock is involved in active transactions on Tehran Stock
Exchange, and if inactive, their inactivity period does not exceed three months. They
had no change in fiscal year during the course of this research, and their fiscal year
ended on March 20, 2015. To have a homogenized sample, we chose companies that
were listed on Tehran Stock Exchange before 2011, and their financial statements and
explanatory notes were available.

Results
In this study, financial performance of selected companies listed on Tehran Stock Exchange
was evaluated. According to the results, 58 companies were efficient with an efficiency value
of 1, and 14 companies were inefficient, those with efficiency values less than 1. The
companies’ efficiency values are shown in Table II.

Identification Financial Selection

Review of of financial and ranking
research Filtration Data perfromance
perfromance of the most
background evaluation
of criteria collection evaluation
efficient
Figure 1.
through DEA Study phases
criteria companies

input criteria decision units output criteria

• assets turnover ratio • selected companies • earning per share

• inventory turnover ratio listed in Tehran Stock ratio
• receivable accounts turnover
Exchange • return on assets ratio
ratio • return on equity ratio
• quick ratio • net profit margin ratio
• current ratio • economic value
• cash earned from net company added
activities to company earnings • growth rate of sales
ratio • growth rate of
• interest coverage ratio earnings per share
• total debt to equity ratio • sustainable growth
• debt ratio rate
• price to earnings ratio Figure 2.
• simple Tobin's Q The conceptual
ratio
model of the study
IJLMA Company’s Company’s Company’s
60,3 Company efficiency value Company efficiency value Company efficiency value

Electric Khodro Mobin

Shargh 0.79 Darou Osveh 1.00 Petrochemical 1.00
Iran Khodro 1.00 Darou Exir 1.00 Sina Chemical 0.84
Iran Khodro
894 Diesel 1.00 Darou Amin 1.00 Far Chemical 0.89
Pars Khodro 1.00 Tehran Darou 1.00 Carbon Iran 1.00
Jaber Ibn Hayan
Charkheshgar 0.81 Pharmaceutical 1.00 Laab Iran 0.87
Amlah Iran
Radiator Iran 1.00 Zahravi Pharm 1.00 Mineral 1.00
Oroumieh
Iran Casting 1.00 Farabi Pharm 1.00 Cement 1.00
Esfahan
Tractor Casting 0.86 Kosar Pharm 1.00 Cement 1.00
Mashhad Ring Bojnord
Making 1.00 Loghman Pharm 1.00 Cement 0.84
Behbahan
Zamyad 1.00 Razak Pharm 1.00 Cement 1.00
Tehran
Saipa 1.00 Sina Darou 1.00 Cement 1.00
Darou Pakhsh Khash
Saipa Azin 1.00 Chemical 0.81 Cement 0.91
Khazar
Saipa Diesel 1.00 Darou Pakhsh Plants 1.00 Cement 1.00
Niroo
Mohareke 0.78 Kimi Darou 1.00 Darab Cement 1.00
Khavar Spring Darou Pakhsh Doroud
Making 0.76 Materials 1.00 Cement 1.00
Zar Spring Shahrood
Making 1.00 Khark Petrochemical 1.00 Cement 1.00
Shazand Shomal
Lent Tormoz 1.00 Petrochemical 1.00 Cement 1.00
Gharb
Mehvar khodro 1.00 Shiraz Petrochemical 1.00 Cement 1.00
Fanavaran
Mehvar Sazan 1.00 Petrochemical 1.00 Fars Cement 1.00
Khorasan Fars No
Nasir Machine 1.00 Petrochemical 1.00 Cement 1.00
Ghaen
Alborz Darou 0.86 Zagros Petrochemical 1.00 Cement 1.00
Table II. Mazandaran
Efficiency of Iran Darou 0.78 Jam Petrochemical 1.00 Cement 1.00
Maroon Karoon
companies listed on
Pars Darou 1.00 Petrochemical 1.00 Cement 1.00
Tehran Stock Aboureihan Kermanshah Kerman
Exchange Pharm 0.85 Petrochemical 1.00 Cement 1.00

Because investors need to make an optimal portfolio of efficient companies, this study uses
Anderson–Petersen model as the best DEA-based ranking model. Table III shows efficient
companies ranking list according to this model.
DEA-based performance evaluation provides desirable values for efficiency of inefficient
companies. This can help managers of inefficient companies to devise suitable promoting
Company Ranking Company Ranking
Financial
performance
Khazar Cement 1 Kerman Cement 30 evaluation
Farabi Pharm 2 Khark Petrochemical 31
Carbon Iran 3 Tehran Cement 32
Loghman Pharm 4 Zagros Petrochemical 33
Gharb Cement 5 Saipa Azin 34
Jabber Ibn Hayan Pharm 6 Amlah Iran Mineral 35 895
Mazandaran Cement 7 Kermanshah Petrochemical Industries 36
Darab Cement 8 Shiraz Petrochemical 37
Darou Amin 9 Shahrood Cement 38
Zar Spring Making 10 Shomal Cement 39
Doroud Cement 11 Radiator Iran 40
Shazand Petrochemical 12 Ghaen Cement 41
Zahravi Pharm 13 Mobin Petrochemical 42
Mashhad Ring Making 14 Mehvar Sazan 43
Pars Khodro 15 Oroumieh Cement 44
Darou Pakhsh Materials 16 Iran Khodro Diesel 45
Fanavaran Petrochemical 17 Karoon Cement 46
Darou Osveh 18 Khorasan Petrochemical 47
Darou Exir 19 Behbahan Cement 48
Saipa 20 Esfahan Cement 49
Darou Pakhsh Plants 21 Pars Darou 50
Kosar Pharm 22 Saipa Diesel 51
Mehvar Khodro 23 Jam Petrochemical 52
Fars Cement 24 Fars No Cement 53
Sina Darou 25 Zamyad 54
Tehran Darou 26 Maroon Petrochemical 55
Razak Pharm 27 Lent Tormoz 56 Table III.
Nasir Machine 28 Iran Casting Industries 57 Efficient companies
Kimi Darou 29 Iran Khodro 58 ranking

strategies to improve efficiency. The desirable inputs and outputs are shown in Tables IV
and V.
A DEA-based performance evaluation system also provides reference units required for
inefficient companies to reach the relative efficiency boundary. Reference units for each of
the inefficient companies are shown in Table VI.

Conclusion and implications

There is no ideal approach to evaluate financial performance of companies. The available
performance evaluation systems ignore the nature of ranking indicators and fail to give
reasons for rejection or acceptance of a company in the optimal portfolio. Therefore, the aim
of this study was to identify the most suitable financial metrics and propose an appropriate
model for performance evaluation based on DEA. The findings can help shareholders to
identify efficient companies for creating the optimal portfolio and managers of inefficient
companies to take proper reforming actions to improve efficiency.
In this study, 19 financial metrics, including accounting, economic, hybrid and financial
metrics, and factors including operational efficiency, liquidity, leverage, profitability,
growth and perspective were selected for financial performance evaluation of companies
listed on Tehran Stock Exchange through a DEA-based approach. The selected companies
were ranked using boundary adjusted model for negative data:
 60,3

896
IJLMA

companies
Table IV.

to become efficient
Desirable inputs for
inefficient companies
Cash earned from
Receivable net activities
Total assets Inventory accounts Quick Current to company Interest Total debt-to- Debt
Company Status turnover ratio turnover ratio turnover ratio ratio ratio earnings ratio coverage ratio equity ratio ratio

Electric Khodro Current 1.75 3.43 12.29 0.75 1.61 0.02 1.49 2.15 0.68
Shargh Desirable 1.13 1.80 9.70 0.02 0.00 0.16 0.00 2.63 0.00
Charkheshgar Current 0.66 1.90 1.48 1.97 3.15 0.08 0.90 2.18 0.69
Desirable 0.16 0.29 0.00 1.07 1.64 0.19 0.00 0.98 0.06
Tractor casting Current 1.82 3.90 8.11 0.42 1.28 0.11 2.67 1.91 0.66
Desirable 1.14 1.98 4.19 0.00 0.28 0.00 0.00 0.87 0.00
Niroo Mohareke Current 2.04 6.66 6.69 0.99 1.57 0.03 6.52 0.98 0.49
Desirable 1.55 5.14 3.33 0.30 0.00 0.13 0.69 0.06 0.02
Khavar Spring Current 1.07 2.77 2.36 1.30 2.24 0.14 4.09 0.80 0.44
Making Desirable 0.51 1.67 0.00 0.31 0.18 0.41 1.19 0.00 0.00
Alborz Darou Current 0.99 2.25 3.39 1.53 2.09 0.26 11.39 0.78 0.44
Desirable 0.31 0.30 0.90 0.27 0.00 0.15 7.97 0.00 0.02
Iran Darou Current 0.92 2.31 3.89 1.13 1.65 0.18 3.92 1.30 0.57
Desirable 0.42 0.96 2.11 0.22 0.00 0.31 2.18 0.00 0.03
Abureihan Current 0.80 2.14 16.03 0.89 1.23 0.02 2.49 3.04 0.75
Pharmecautical Co. Desirable 0.33 0.20 14.52 0.03 0.00 0.00 0.00 1.42 0.10
Darou Pakhsh Current 0.95 2.67 2.58 0.85 1.24 0.13 2.45 2.51 0.72
Chemical Co. Desirable 0.53 0.83 1.23 0.00 0.00 0.12 0.00 0.85 0.11
Sina Chemical Co. Current 2.05 10.87 4.19 0.75 1.04 0.10 1.40 2.63 0.72
Current 1.44 8.72 0.49 0.26 0.00 0.10 0.00 0.79 0.10
Fars Chemical Desirable 1.42 10.22 3.46 0.80 1.03 0.04 2.07 3.30 0.77
Current 0.67 5.51 0.00 0.22 0.00 0.03 0.00 0.00 0.03
Laab Iran Current 0.81 2.99 1.51 0.84 1.17 0.13 0.73 4.28 0.81
Desirable 0.29 0.96 0.20 0.00 0.00 0.08 0.00 2.96 0.05
Bojnord Cement Desirable 0.50 1.72 3.43 0.55 1.33 0.24 5.11 1.84 0.65
Current 0.09 0.03 0.72 0.00 0.14 0.31 1.63 0.76 0.14
Khash Cement Desirable 1.06 1.60 26.49 0.35 1.29 0.32 23.73 1.15 0.53
Current 0.27 0.00 0.93 0.00 0.10 0.10 8.03 0.17 0.09
 Price to
Growth rate of earnings
Earnings per Return on Return on Net profit Growth rate earnings Sustainable per share Tobin’s
Company Status share ratio assets ratio equity ratio margin ratio EVA of sales per share growth rate ratio Q ratio

Electric Khodro Current 120.00 0.03 0.10 0.02 48,691.94 0.69 0.97 0.10 14.59 447.27
Shargh Desirable 189.10 0.07 0.26 0.19 0.00 0.00 26.11 0.07 0.00 340.66
Charkheshgar Current 72.00 0.02 0.06 0.03 38,647.40 0.26 5.00 0.05 30.38 539.00
Desirable 3,843.38 0.14 0.35 0.34 168,745.20 0.00 9.82 0.07 0.00 350.17
Tractor casting Current 310.00 0.06 0.18 0.03 13,411.27 0.24 0.01 0.10 7.52 471.91
Desirable 201.99 0.04 0.03 0.16 146,954.10 0.00 3.91 0.00 0.00 286.42
Niroo Mohareke Current 346.00 0.12 0.23 0.06 176,255.00 0.95 2.01 0.13 5.36 361.20
Desirable 262.14 0.03 0.07 0.28 172,951.20 0.00 19.21 0.05 0.02 496.36
Khavar Spring Current 213.00 0.06 0.10 0.05 19,258.00 0.37 0.20 0.00 15.11 836.14
Making Desirable 658.60 0.12 0.22 0.27 152,863.60 0.00 33.19 0.24 0.00 199.35
Alborz Darou Current 2,185.00 0.30 0.54 0.31 581,781.64 0.29 0.03 0.05 5.72 1,734.63
Desirable 303.24 0.00 0.00 0.10 5,944,993.00 0.00 18.81 0.07 0.79 0.00
Iran Darou Current 1,026.00 0.20 0.45 0.21 84,578.50 0.14 0.18 0.05 5.51 1,075.96
Desirable 2,419.76 0.00 0.02 0.20 336,566.40 0.00 21.24 0.12 0.13 0.00
Abureihan Current 1,903.00 0.14 0.56 0.17 235,236.19 0.30 0.05 0.08 13.14 1,830.99
Pharmecautical Desirable 3,390.27 0.06 0.00 0.29 212,412.20 0.00 3.48 0.02 1.33 0.00
Co.
Darou Pakhsh Current 887.00 0.10 0.34 0.10 54,178.00 0.14 0.18 0.04 7.62 736.31
Chemical Co. Desirable 4,030.58 0.09 0.19 0.36 409,015.90 0.05 5.39 0.14 0.00 114.53
Sina Chemical Current 198.00 0.04 0.13 0.02 2,072.75 0.05 0.04 0.00 36.23 1,014.89
Co. Desirable 609.16 0.04 0.04 0.17 202,341.80 0.15 2.99 0.01 0.00 0.00
Fars Chemical Current 355.00 0.05 0.22 0.04 9,694.90 0.14 0.10 0.19 13.66 712.10
Desirable 717.68 0.02 0.00 0.12 22,091.38 0.16 7.55 0.00 15.90 0.00
Laab Iran Current 151.00 0.01 0.05 0.01 12,555.06 0.18 1.11 0.05 13.72 122.86
Desirable 4,825.78 0.14 0.36 0.32 0.00 0.70 1.01 0.04 12.84 724.72
Bojnord Cement Current 589.00 0.09 0.25 0.17 211,185.85 0.10 0.39 0.11 8.52 739.83
Desirable 0.00 0.04 0.03 0.17 202,204.90 0.03 16.80 0.27 0.00 0.00
Khash Cement Current 1,964.00 0.27 0.57 0.25 233,614.43 0.19 0.02 0.02 4.08 1,081.21
Desirable 0.00 0.00 0.00 0.08 209,136.70 0.00 7.74 0.12 1.22 257.26

Table V.
evaluation

companies
to become efficient
inefficient companies
897
Financial

Desirable outputs for

performance
IJLMA Inefficient
60,3 companies Reference units

Electric Khodro Iran Casting Industries, Zamyad, Saipa Diesel, Lent Tormoz, Maroon Petrochemical,
Shargh Tehran Cement, Fars No Cement
Charkheshgar Zamyad, Saipa Diesel, Zar Spring Making, Lent Tormoz, Pars Darou
Tractor Casting Iran Casting Industries, Zamyad, Zar Spring Making, Lent Tormoz, Mehvar Khodro,
898 Tehran Cement, Shahrood Cement
Niroo Mohareke Lent Tormoz, Tehran Cement, Fars No Cement
Khavar Spring Zamyad, Saipa, Saipa Azin, Lent Tormoz, Pars Darou, Jaber Ibn Hayan Pharmaceutical
Making Co., Zahravi Pharm
Alborz Darou Saipa Azin, Lent Tormoz, Razak Pharm., Maroon Petrochemical, Kermanshah
Petrochemical Ind., Mobin Petrochemical, Fars No Cement
Iran Darou Lent Tormoz, Pars Darou, Razak Pharm, Kermanshah Petrochemical Ind., Fars No
Cement, Ghaen Cement
Aboureihan Iran Casting Industries, Lent Tormoz, Pars Darou, Mobin Petrochemical, Tehran
Pharmaceutical Cement, Doroud Cement, Ghaen Cement
Darou Pakhsh Zamyad, Spring Making, Pars Darou, Tehran Cement
Pharmaceutical
Sina Chemical Zamyad, Zar Spring Making, Lent Tormoz, Tehran Cement, Ghaen Cement
Fars Chemical Iran Khodro, Saipa, Saipa Azin, Zar Spring Making, Lent Tormoz, Pars Darou, Tehran
Darou, Tehran Cement
Laab Iran Saipa Diesel, Zar Spring Making, Pars Darou, Tehran Cement
Table VI. Bojnord Cement Zamyad, Lent Tormoz, Pars Darou, Tehran Cement, Ghaen Cement
Reference units for Khash Cement Lent Tormoz, Mobin Petrochemical, Oroumieh Cement, Behbahan Cement, Shahrood
inefficient companies Cement, Fars No Cmenet, Ghaen Cement

operational efficiency (receivable accounts turnover, inventory turnover and assets

turnover);

liquidity (current ration, quick ratio and cash earned from net activities to company
earnings ratio);

leverage (interest coverage ratio, total debt-to-equity ratio and debt ratio);

profitability (earnings per share ratio, return on assets ratio, return on equity ratio,
net profit margin ratio and EVA);

growth (growth rate of sales, growth rate of earnings per share and sustainable
growth rate); and

company’s perspective (price to earnings ratio and Tobin’s Q ratio).

In total, 58 companies were identified as efficient after evaluating the performance of the
selected companies through the proposed model. A ranking of the efficient companies was
obtained using Anderson–Petersen method. Khazar Cement Co. ranked 1 while Iran Khodro
ranked 58 in the resulted ranking list. The cement industry, with 16 companies, has the most
efficient companies, while petrochemical industry, with 12 companies, has the lowest
number of efficient companies. For each of the 14 companies that were identified as
inefficient, reference (model) companies were determined, and the effect of each measure on
their efficiency was calculated. The findings of the study can help shareholders to follow a
logical approach for selection of companies and by having the optimal portfolio achieve
higher return in the capital market. The findings can also help managers of inefficient
companies to optimally allocate resources and improve performance by using the reference
company as a model and observing the effect of each criterion on the efficiency rate of the Financial
company. performance
According to the literature, performance evaluation through DEA has always been a
topic of interest for many researchers. However, the proposed method for selection of
evaluation
financial criteria and ranking companies provides a new perspective for the researchers of
performance evaluation area.
Future research can use the gray theory for selection of financial performance
evaluation criteria and cross-efficiency matrix for ranking the efficient companies.
899
Future studies can also focus on performance evaluation of big organizations, such as
holdings.

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Corresponding author
Masoud Barati can be contacted at: barati_masoud@yahoo.com

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