This document presents a framework for using a multicriteria evaluation methodology to assess the effectiveness of corporate governance through key financial indicators. The authors apply the Simple Additive Weighting method to evaluate governance quality indicators for Lithuanian manufacturing corporations. They develop a system of financial indicator pillars, determine the significance of each indicator, and establish an overall index as a generalized measure of corporate governance performance. The case study illustrates this evaluation process and compares the results for two furniture companies.

1. COMPLEX ASSESSMENT
OF ESSENTIAL FINANCIAL INDICATORS
IN CORPORATE GOVERNANCE
A. Buracas, A. Zvirblis, V. Navickas– Lithuania

2. SUMMARY OF RESEARCH
The study presents the framework for the complex evaluation of
the essential FINANCIAL INDICATORS IN CORPORATE GOVERNANCE:
• based on multiple criteria assessment methodology;
• reflecting its advantage or disadvantage in evaluation of social
processes;
• determining the values of so-called indicator pillars &
general measure when the significance of each indicator is
allowed.
The authors applied the Simple Additive Weighting (SAW) method
of quantitative evaluation of the governance quality indicators.
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3. SYSTEMIC EVALUATION & ANALYTICAL FINDINGS
The theoretic background of the complex evaluation :
• Substantiation of essential financial indicators for
manufacturing corporation (as a whole);
• Formalization of interrelations between primary financial
indicators and corporate management system;
• Development of multiple criteria evaluation methodology for
the whole of financial indicators;
• Creation of background assessment models by aapplying the
Simple Additive Weighting method.
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4. MAIN ATTITUDES
For certain companies from the selected industry
(their target group), the adequate indicator totality
(evaluation criteria system) must be constructed.
It is expedient to detail the purposeful groups
(pillars) of these indicators as partially integrated
evaluation criteria.
The complex assessment of financial indicators
reflecting corporate governance effectiveness was
presented for the case of competitive Lithuanian
manufacturing corporations to illustrate the
application of the analytical research results.
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5. COMPLEX EVALUATION METHODOLOGY
The developed multicriteria evaluation methodology is based on:
• formation of the evaluation criteria system;
• conceptual provisions of the determination of general
dimension;
• expert examination and determination of significances of
primary financial indicators;
• establishment of pillar indexes and
• determination of the overal index (as a generalized measure)
based on proposed models.
The integrated evaluation system may include several scenarios
according to the trend of predicted indicator values.
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6. MULTICRITERIA EVALUATION PROCEDURES
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It is expedient to apply the Simple Additive Weighting method and
to allow the different significances of various financial indicators.
The overal index estimation process may be performed on basis of
composed identified indicator pillars using the adequate
procedures, including:
• the normalization of financial indicator values and expert
examination of their significance also ranking in the pillars;
• the determination of partially integrated criteria values
(indicator pillars indexes);
• the establishment of general measure (overall index).

7. PRECONDITIONS FOR MULTICRITERIA EVALUATION
7
The several methodological preconditions may be distinguished:
 The adequacy and reliability of objective information necessary
for assessment;
 The maximum number of indicators in pillars;
 Formation of the adequate system of primary and integrated
evaluation criteria;
 The authenticity of the assessment process formalizing;
 Incorporation of the expert evaluations into complex assessing
process;
 The highest possible number of alternatives to be investigated.

8. PILLARS OF EVALUATION CRITERIA (1)
Pillar A:
• A1. Sales growth rate
• A2. Gross margin of profitability
• A3. Net margin of profitability
• A4. EBITDA
• A5. Sales profitability ratio
• A6. Price earnings ratio
• A7. Return on assets (ROA)
• A8. Return on investment (ROI)
• A9. Dividend yield.
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9. PILLARS OF EVALUATION CRITERIA (2)
9
Pillar B:
• B1. Solvency ratio
• B2. Liquidity ratio;
• B3. Coverage ratio;
• B4. Cash flow to revenue ratio;
• B5. Cash flows equilibrium;
• B6. Stock turnover ratio;
• B7. Market value of securities;
• B8. Scored risk level of securities.

10. BACKGROUND EVALUATION MODEL
The background model for determination of
integrated index value (non-dimensional) may
be presented as follows
(A – primary financial indicators,
a – significance coefficients of appropriate
indicators):
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11. 11
The procedures of multicriteria evaluation process
Formation of data basis for
examined companies
Identification of criteria and constructing
of their pillars
Transformation of minimizing criteria into
maximizing ones; normalization of criteria
(indices) values
Expert ranking (assessment of
significances) of identified indices;
assessing of pillar weights
Establishment of partially integrated
criteria (calculation of pillar indexes)
Determination of overall index of
financial indicators
Simulation of Trends (and comparative
ranking for target group of companies)
Program for trends
simulation and
companies ranking

12. SOME RESULTS OF THE CASE ASSESSMENT
12
• Complex assessment of financial performance indicators in
the case of manufacturing enterprise was carried out using
the principles developed.
• The assessment models (based on SAW method) were
adapted according to identified evaluation criteria for each
indicator pillar.
• Overal index was determined for the two competing
Lithuanian furniture manufacturing companies in Vilnius (VLB)
and Klaipeda (KLB) according to their semi-annual financial
statements for 2013.

13. 13
Case study by SAW (Simple Additive Weighting):
assessment of indicator pillar A: 1

14. 14
Case study : assessment of indicator pillar B

15. Conclusions:1
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The quantitative assessment process is particularly relevant
under conditions of dynamic changes of the surrounding macro
factors affecting corporate management strategy. The
quantitative methodology is still not integrated adequately with
expert evaluations.
It is characterized by adaptability (according to the whole of
evaluation criteria for an assessment in specific conditions);
and it is applicable for the complex investigation of the quality
and effectiveness of corporate governance.
The algorithmic procedures of proposed assessment process may
be incorporated into support system of business management.

16. Conclusions (2)
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 Authors suggested the complex aggregated evaluation at
corporate level – background, modelling and technique.
 There are more wide possibilities to implement the
Multicriteria Assessment Methodology based on Simple
Additive Weighting method when investigating competitive
manufacturing corporations & forming more sophisticated
algorithms of this process. The proposed models have been
applied by determining the overal index.
 An algorithm of computer-generated assessment process may
be recommended to apply when modeling the different trend
effects of financial indicators.

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Contacts ?
• antanas@buracas.com
• linkedIn