Mercedes 2010 Annual Report Download - page 82

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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
return 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 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.
Cost of capital
2010 2009
In percent
Group, after taxes 88
Industrial divisions, before taxes 12 12
Daimler Financial Services, before taxes 13 13
Return on sales. As one of the main drivers of value added,
the return on sales (ROS) is of particular importance for the
assessment of the industrial divisions’ profitability. The profit-
ability measure of Daimler Financial Services is not ROS, but
return on equity (ROE), in line with the usual practice in the bank-
ing business.
Value added
The Group’s value added increased by €7.4 billion to €2.8 billion,
representing a return on net assets of 17.5% (2009: minus 6.6%).
This was considerably higher than the minimum required rate
of return of 8%. In addition to the decrease in average net assets,
the improvement in value added was primarily due to the sig-
nificant increase in the divisions’ operating profit. There was an
opposing, negative effect in particular from the higher income-
tax expense.
Mercedes-Benz Cars achieved positive value added of €3.4 billion
(2009: minus €1.9 billion). The division’s excellent earnings,
primarily resulting from the higher volume of unit sales and an
advantageous product mix as well as the decrease in average
net assets caused by rising liabilities, contributed to the increase
in value added.
The value added of Daimler Trucks increased by €2.3 billion to
€0.5 billion. The main reasons for this increase were the signifi-
cant earnings improvement due to the good development of unit
sales and the positive effects from the cost-reducing actions.
Average net assets were almost unchanged.
The Mercedes-Benz Vans division posted an increase in value
added of €0.5 billion to €0.3 billion, primarily due to the significant
earnings improvement resulting from higher unit sales. An addi-
tional factor was that the decrease in average net assets caused
by lower working capital led to a further increase in value added.
Value added at Daimler Buses increased from €36 million to
€71 million. In addition to a slight decrease in average net assets,
this was caused by the positive earnings development.
Value added also increased significantly at Daimler Financial
Services (by €0.8 billion to €0.2 billion). The division’s return
on equity was 16.1% (2009: 0.2%). The positive development was
mainly the result of the increase in earnings caused by lower
expenses for risk provisions and higher interest margins, partially
offset by an increase in equity.