Mercedes 2009 Annual Report Download - page 80

76
Financial performance measures
The financial performance measures used at Daimler are oriented
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
between 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
revenue growth strategy provides the basis for a positive devel-
opment 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 oper-
ations, 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 allo-
cated 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 Financial
Services as well as the net assets from discontinued operations,
income taxes and other reconciliation items for which the divisions
are not held accountable. The average annual net assets are cal-
culated 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 oblig-
ations of the industrial business; the expected returns on liquid-
ity 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 (%)