Stochastic Frontier Method for Evaluating the Efficiency of Enterprises

Abstract

At the moment, there is an increase in the importance of efficiency in another sector of the economy. Evaluating the efficiency of an enterprise makes it possible to implement a correct and profitable resource allocation strategy, which shows its potential level. In connection with the annual increase in the number of bankrupt enterprises, the problem of assessing the efficiency of enterprises' activities is relevant both for their owners and managers, and for creditors. There are various methods and models for assessing the efficiency of enterprises. One study focuses on the improvement of a parametric method for assessing the performance of objects - the SFA (Stochastic Frontier Analysis) method. The classical SFA method is based on the production function of an enterprise, linking the volume of output with the volume of consumed resources. In this case, the SFA model uses several input (volumes of consumed resources) and only one output parameter - the volume of output. The essence of the proposed modification of the model based on the SFA method is to use financial indicators of enterprises' activities instead of data on consumed resources and output, on the basis of evaluating the financial activity of the economic objects under study. The developed model of the situation for assessing the efficiency of the enterprise in terms of its financial indicators.