Mercedes 2008 Annual Report Download - page 59

Management Report |Profitability |55
Financial performance measures
The financial performance measures used at Daimler are orient-
ed towards our investors’ interests and expectations, and provide
the foundation for our value-based management.
Value added. For purposes of performance measurement,
Daimler differentiates between the Group level and the divisional
level. Value added is one element of the performance measure-
ment system at both levels and is calculated as the difference be-
tween the operational result and the cost of capital of the average
net assets in that period.
Alternatively, the value added of the industrial divisions can be
determined by using the main value drivers return on sales
(ROS; quotient of EBIT and revenue) and net assets productivity
(quotient of revenue and net assets).
The use of ROS and net assets productivity within the context
of a supplementary revenue growth strategy provides the basis
for a positive development of value added. Value added shows
to which extent the Group and its divisions achieve or exceed the
minimum return requirements of the shareholders and creditors,
thus creating additional value.
Profit measure. The operational profit measure at divisional
level is EBIT (earnings before interest and taxes). EBIT is calculated
before interest, income taxes and results from discontinued
operations, and hence reflects the divisions’ profit and loss respon-
sibility. The operational profit measure used at Group level is
net operating profit. It comprises the EBIT of the divisions and
profit and loss effects that the divisions are not held responsible
for, including results from discontinued operations, income taxes
and other reconciliation items.
Net assets. Net assets represent the basis for the investors’
required return. The industrial divisions are accountable for the
operational net assets; all assets, liabilities and provisions which
they are responsible for in day-to-day operations are therefore
allocated to them. Performance measurement at Daimler Financial
Services is on an equity basis, in line with the usual practice in
the banking business. Net assets at Group level include the net
assets of the industrial divisions and the equity of Daimler Finan-
cial Services as well as the net assets from discontinued opera-
tions, income taxes and other reconciliation items for which the
divisions are not held accountable. The average annual net assets
are calculated from the average quarterly net assets, which are
calculated as the average of net assets at the beginning and end
of each quarter.
Cost of capital. The required rate of return on net assets and
hence the cost of capital is derived from the minimum rates
of return that investors expect on their invested capital. The cost
of capital of the Group and the industrial divisions comprises
the cost of equity as well as the costs of debt and pension obliga-
tions of the industrial business; the expected returns on liquidity
and plan assets of the pension funds of the industrial business are
considered with the opposite sign.
Value Added =–x Profit Measure
Cost of Capital
Cost of
Capital (%)
Net Assets
Value Added Net Assets
=–xx Net Assets
Productivity
Return on
Sales
Cost of
Capital (%)