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TD BANK FINANCIAL GROUP ANNUAL REPORT 2006 Management’s Discussion and Analysis
14
ECONOMIC PROFIT AND RETURN ON INVESTED CAPITAL
The Bank utilizes economic profit as a tool to measure sharehold-
er value creation. The Bank’s goal is to achieve positive and
growing economic profit.
Return on invested capital (ROIC) is a variation on the eco-
nomic profit measure that is useful in comparison to the equity
cost of capital. When ROIC exceeds the equity cost of capital,
economic profit is positive. The Bank’s goal is to maximize
economic profit by achieving ROIC that exceeds the equity cost
of capital.
Economic profit and ROIC are not defined terms under GAAP
and, therefore, may not be comparable to similar terms used by
other issuers. Table 4 reconciles between the Bank’s economic
profit, ROIC and adjusted net income. Adjusted net income
and related terms are discussed in the “How the Bank Reports”
section.
(millions of Canadian dollars) 2006 2005 2004
Average common equity $17,983 $14,600 $12,050
Average cumulative goodwill/intangible assets amortized, net of income taxes 3,540 3,213 2,834
Average invested capital 21,523 17,813 14,884
Rate charged for invested capital 9.5%10.1% 10.7%
Charge for invested capital $ (2,045) $ (1,799) $ (1,593)
Net income available to common shareholders – reported $ 4,581 $ 2,229 $ 2,232
Items of note impacting income, net of income taxes (1,227) 632 253
Net income available to common shareholders – adjusted $3,354 $2,861 $2,485
Economic profit $1,309 $1,062 $ 892
Return on invested capital 15.6% 16.1% 16.7%
RECONCILIATION OF ECONOMIC PROFIT, RETURN ON INVESTED CAPITAL AND ADJUSTED NET INCOME
TABLE 4
(millions of Canadian dollars) 2006 2005 2004
TD Canada Trust $207 $301 $454
TD Banknorth reported amortization of intangibles 72 35–
Less: non-controlling interests 12 2 –
Net amortization of intangibles 60 33–
TD Ameritrade (included in equity in net income of associated company) 28 ––
Other 21 20 23
Amortization of intangibles, net of income taxes1$316 $354 $477
1Amortization of intangibles is included in the Corporate segment.
AMORTIZATION OF INTANGIBLES, NET OF INCOME TAXES
TABLE 3