Mercedes 2006 Annual Report Download - page 72

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Principles and objectives of financial management
Financial management at DaimlerChrysler consists of capital
structure management, cash and liquidity management, pension
asset management, market price risk management (foreign
exchange rates, interest rates and commodities) and credit and
financial country risk management.
Worldwide financial management is performed in a standard-
ized way for all Group entities by Treasury. Financial management
is guided by a framework of guidelines, limits and benchmarks.
Financial management is separated from other financial functions
such as financial controlling, reporting, settlement and accounting.
Capital structure management designs the capital structure
for the Group and all of its subsidiaries. Decisions regarding
the capitalization of Financial Services companies, production,
distribution, financing or regional holding companies are
based on standardized Group guidelines. The levels of equity of
Group companies also depend on refinancing conditions in
local banking markets. In addition, it is necessary to adhere to
the provisions of applicable law including the so-called thin-
capitalization rules in the taxation legislation of certain countries,
as well as various capital transaction restrictions and other
restrictions on the transfer of capital and currencies.
Cash management determines cash requirements and surpluses
on a worldwide basis. The number of external bank transactions
is minimized by the Group’s internal netting of cash requirements
and surpluses. Netting is done by cash-concentration or cash-
pooling procedures. DaimlerChrysler has established standardized
processes and systems in order to control its bank accounts,
internal cash clearing accounts and the execution of automated
payment transactions.
Liquidity management secures DaimlerChrysler’s ability to
meet its payment obligations at any time. For this purpose,
liquidity planning provides information about all cash flows from
operating and financial activities for a rolling period of twelve
months. Resulting financial requirements are covered by the use
of appropriate instruments for liquidity management; liquidity
surpluses are invested in the money market to optimize return.
Besides operational liquidity, DaimlerChrysler keeps additional
liquidity reserves, which are available on a short-term basis. These
liquidity reserves include a pool of receivables from the Finan-
cial Services business which are readily available for se
curitization
in the capital market, as well as confirmed syndicated
credit
lines with varying maturities.
Management of market price risks aims at minimizing the
impact of fluctuations in foreign exchange rates, interest rates
and commodity prices on the results of the divisions and the
Group. The Group’s overall exposure to these market price risks
is determined to provide the basis for hedging decisions. These
cover the selection of the hedging instrument and the definition
of the hedging volume and corresponding period. Decisions
regarding the management of risks resulting from fluctuations in
foreign exchange rates, interest rates and commodity prices
as well as decisions on asset-liability management are regularly
made by the respective committees.
Liquidity and Capital Resources