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16 Board of Directors’ Report
FINANCIAL TARG ETS
Financial targets
Volvo’s ambition is to achieve a sustain-
able level of profitability above the indus-
try average. Volvo has set a number of
financial targets covering growth, operat-
ing margin, return on equity and capital
structure. These financial targets are set
and evaluated over a business cycle.
Sales growth
Volvo’s ambition is that net sales should
increase by an average of more than
10% on an annual basis. This objective
should be achieved through both organic
growth and acquisitions. During the period
from 2000 to 2004, the average annual
growth rate, excluding divested opera-
tions, was 13.8%.
Operating margin
The objective is to obtain an operating
margin of between 5% and 7% over a
business cycle. The average annual oper-
ating margin for the Volvo Group during
2000 to 2004 was 3%.
Return on equity
The objective is to achieve a return on
shareholders’ equity of between 12% and
15%. Return on shareholders' equity in
2004 was 13.2%.
Capital structure
As the Volvo Group operates in cyclical
industries, it is important to maintain a
strong capital structure to be able to
invest in production and product develop-
ment throughout the entire business
cycle.
The Group’s objective is to maintain a
net financial position ratio, excluding
Financial Services, between a net finan-
cial assets position of 15% and a net
debt financial position of 30% of share-
holders’ equity and minority interest. The
equity ratio excluding Financial Services,
should over the business cycle reach the
target level of approximately 40%.
At the end of December 2004, the
Volvo Group had a net financial asset
position of 26.8% of shareholders’ equity
and minority interests. On December 31,
2004, the equity ratio for the Group,
excluding Financial Services, was 40.0%
and the equity ratio for Financial Services
was 11.6%.
00 01 03
350 (2)
02
(1)
Net sales growth, %
0
10
04
15
00 01 03
5.5 (0.4) 1.6
02
1.4
Operating margin, %
0
7
5
04
7.0
00 01 03
5.0 (1.7) 1.7
02
0.4
Return on shareholders’ equity, %
0
15
12
04
13.2
00 01 03
10.6 (8.2) (7.7)
02
(3.3)
Net financial position as
percentage of shareholders’
equity and minority interests, %
15
0
–30
04
26.8