Mercedes 2008 Annual Report Download - page 60

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The cost of equity is calculated according to the capital asset
pricing model (CAPM), using the interest rate for long-term risk-
free securities (such as government bonds) plus a risk premium
reflecting the specific risks of an investment in Daimler shares.
The cost of debt is derived from the required rate of return for
obligations entered into by the Group with external lenders. The
cost of capital for pension obligations is calculated on the basis
of discount rates used in accordance with IFRS. The expected re-
turn on liquidity is based on money market interest rates. The
expected return on plan assets of the pension funds is derived
from the expected return from interest, dividends and other in-
come generated by the plan assets, which are invested to cover
the pension obligations. The Group’s cost of capital is the
weighted average of the individually required or expected rates
of return; in the reporting period, the cost of capital amounted
to 8% after taxes. For the industrial divisions, the cost of capital
amounted to 12% before taxes; for Daimler Financial Services,
a cost of equity of 13% before taxes was applied.
Return on sales. As one of the main drivers of value added, the
return on sales (ROS) is of particular importance for the assess-
ment of the industrial divisions’ profitability. The profitability
measure of Daimler Financial Services is not ROS, but return on
equity (ROE), in line with the usual practice in the banking busi-
ness.
Value added
The Group’s value added decreased by €2.5 billion to minus €1.1
billion, representing a return on net assets of 4.4% (2007: 10.5%).
The decrease in value added was primarily caused by effects on
earnings related to Daimler’s equity interests in Chrysler and
EADS as well as lower earnings at the Mercedes-Benz Cars and
Daimler Trucks divisions. There were opposing effects from
the lower income tax expense than in the prior year and from the
decrease in average net assets, which was mainly due to the
fact that net assets from discontinued operations were still in-
cluded in the prior year.
The Mercedes-Benz Cars division’s value added decreased by
€3.0 billion to €0.9 billion, due in particular to the negative effects
on earnings resulting from the abrupt drop in demand in the
second half of 2008. Additional reasons for the decrease in value
added were the higher levels of inventories and property, plant
and equipment which led to an increase in average net assets.
At the Daimler Trucks division, value added decreased to €0.8
billion from €1.4 billion in 2007, primarily due to lower EBIT and
a slight increase in net assets. The negative earnings trend was
mainly related to lower vehicle deliveries resulting from the diffi-
cult economic situation in the NAFTA region as well as expenses
relating to measures taken for the realignment of Daimler Trucks
North America.
The value added of the Daimler Financial Services division
increased to €0.1 billion, primarily due to higher earnings from
the increased contract volume.
Value added of Vans, Buses, Other decreased compared with
the prior year by €3.3 billion to minus €2.3 billion. This sharp
decrease was mainly caused by charges relating to Daimler’s
equity interest in Chrysler as well as gains in the prior year
relating to the transfer of EADS shares. However, the Mercedes-
Benz Vans and Daimler Buses units were able to increase their
value added as a result of higher earnings.
in %
Cost of capital
7
11
14
8
12
13
2008 2007
Group, after taxes
Industrial divisions, before taxes
Financial Services, before taxes