An investigation of cost, revenue and profit efficiency: The case of Iranian companies

Abstract

Using data envelopment analysis technique, this research firstly investigated cost, revenue and profit efficiency of automobile and parts industry of companies listed in Tehran stock exchange during the years 2006 to 2009. Secondly, it explored potential relationships between a few variables including size, operating costs, profitability, asset turnover ratio and different efficiency measures calculated in the first stage. The empirical results indicated that average cost, revenue and profit efficiency of surveyed companies over the given period were 0.51, 0.57 and 0.27, respectively. In this context, inefficient companies, using efficiency frontier concept and considering benchmark units, could approach efficient levels, as it was treated in this paper. Moreover, the findings arrived from exploring potential determinants of efficiency revealed that there was a significant positive relationship between return on equity, sales to fixed assets and cost efficiency between sales to fixed assets, log. total assets, sales to total assets and revenue efficiency and finally between sales to fixed assets, log. total assets and profit efficiency. These results implied that the more a company was large, the more it was revenue and profit efficient. Also, they highlight effective role of fixed assets in firms operations and generating profits. Key words: Data envelopment analysis, cost efficiency, revenue efficiency, profit efficiency and Iranian companies.