Enhancing Financial Performance Evaluation: The MEREC-RBNAR Hybrid Method for Sustainability-Indexed Companies

Abstract

Todays, companies are evaluated not only based on their financial activities but also in terms of their attitudes towards environmental, social, and governance (ESG) activities. In this context, companies are indexed based on their sustainability levels, striving to improve both their sustainability and financial levels simultaneously. The main objective of this research is to evaluate and compare the financial performance of companies listed in the sustainability index. To determine the financial performance of companies in the sustainability index, this research develops and proposes the MEREC (Method Based on the Removal Effects of Criteria) - RBNAR (Reference-Based Normalization Alternative Ranking) hybrid method. Additionally, financial ratios are used as criteria for evaluating companies' financial performance. The weights of financial ratios are calculated using the MEREC method, while the RBNAR method determines companies' financial performances. The application of the MEREC-RBNAR hybrid method is presented through a case study aiming to identify the financial performance of companies listed in the Istanbul Stock Exchange's sustainability index for the year 2022. Furthermore, in this research, companies' financial performance levels are determined by considering the averages of financial ratios of companies listed in the sustainability index, using reference-based normalization processes. The research concludes that the most critical criterion in determining the financial performance of companies in the sustainability index is Return on Equity (ROE). MAVI Clothing Industry and Trade Inc. is identified as the company with the highest financial performance level.