Mercedes 2001 Annual Report Download - page 63

Analysis of the Financial Situation 59
Performance measures as an important component of
corporate management. The performance measures
implemented by DaimlerChrysler encourage decentral-
ized responsibility, cross-divisional transparency and
capital-market-oriented investment performance in all
areas of the Group, thereby supporting management in
its tasks of leading and developing the entire company
and its individual business units.
For performance purposes, we differentiate
between the Group level and the operating levels of the
segments and business units. At the Group level, value
added is calculated as an absolute performance measure
by deducting weighted average cost of capital from net
operating income, an after-tax performance measure.
For the determination of the Group performance
measure, return on net assets (RONA), net operating
income is compared to the capital employed by the
Group. Return on net assets demonstrates the extent
to which the DaimlerChrysler Group achieves or
surpasses the rate of return required by its investors.
The required rate of return, or the Group’s average
cost of capital, is defined as the minimum rate of return
that investors expect on invested equity and borrowings.
These capital costs are mainly determined by long-
term, risk-free, fixed-interest bond rates combined with
a risk premium for investments in stocks. At the Group
level in 2001, a cost-of-capital rate of 9.2% was used,
which has been unchanged since 1998. For the
industrial divisions and business units, operating profit
is used as an earnings measure, a commonly accepted
performance measure before interest and taxes, which
accurately reflects the areas of responsibility under
the control of the business unit management. The
industrial businesses also use net assets, defined as
assets minus non-interest-bearing liabilities, as a
capital basis. The minimum required rate of return on
net assets was 15.5% before taxes. For financial
services activities, as is usual in this sector, return on
equity is applied as a performance measure. The target
rate of return on equity was 17% before taxes. The
decrease of three percentage points compared to the
prior year resulted from a lower average tax rate for
Financial Services.
Development of net assets and return on net assets.
In 2001, net operating income, which is derived from
net income, totaled €1.6 billion excluding one-time
effects (€0.3 billion including one-time effects). In con-
nection with an increase in net assets from €6.4 billion
to €65.9 billion (annual average), return on net assets
for the DaimlerChrysler Group amounted to 2.5% after
taxes. The Mercedes-Benz Passenger Car & smart
division again significantly surpassed the 15.5% (before
taxes) minimum required rate of return. Chrysler
Group, Commercial Vehicles and Financial Services did
not achieve the minimum required rate of return,
primarily due to the unsatisfactory economic situation
in North America. During 2001, Chrysler Group and
the Freightliner, Sterling, Thomas Built Buses business
unit implemented comprehensive programs designed
to improve their profitability.
1) Adjusted for one-time effects.
2) Excluding Financial Services (due to the investment of Deutsche
Telekom in debis Systemhaus figures are not comparable with the prior
year).
3) Due to the addition and disposition of a number of investments,
figures are not comparable with the prior year. The other industrial
activities include the investments in Mitsubishi Motors (since October
2000) and EADS (since July 2000) as well as MTU Aero Engines. The
sold business unit Rail Systems was included through April 2001 and
the business unit Automotive Electronics was included through March
2001, thereafter at equity.
4) Before taxes.
DaimlerChrysler
Group
(after taxes)
Industrial business
(before interest and
taxes)
Mercedes-Benz
Passenger Cars &
smart
Chrysler Group
Commercial Vehicles
Services2)
Other Industrial
Activities3)
Financial Services
Net Assets and Return on Net Assets1)
65.9 59.5 2.5 7.4
54.7 48.8 1.4 9.5
11.1 10.9 26.7 26.3
26.6 25.0 (8.2) 2.1
9.2 7.6 0.6 16.5
2.2 1.1 1.9 9.5
5.6 4.2 7.2 10.8
%
Return on Net Assets
Stockholders’ Equity Return on Equity4)
9.6 6.2 5.9 9.6
01 00 01 00
%
(annual average, in billions of €)
Net Assets