Siemens 2007 Annual Report Download - page 299

Notes to Consolidated Financial Statements 299
(in millions of €, except where otherwise stated and per share amounts)
Notes to Consolidated Financial Statements
The balanced view of liquidity and fi nancial indebtedness is stated in the cal-
culation of the net liquidity amount and is used for internal corporate fi nance
management as well as external communication with investors, analysts and rat-
ing agencies. It results from the total amount of cash and cash equivalents as well
as current available-for-sale fi nancial assets, less the amount of commercial
paper, medium-term notes, bonds, loans from banks and obligations under
fi nance leases as stated on the balance sheet.
The Company’s capital resources are comprised of cash and cash equivalents,
current available-for-sale fi nancial assets and cash fl ow from operating activities.
In contrast, capital requirements include scheduled debt service, regular capital
spending and ongoing cash requirements from operating activities.
Credit risk
The Company is exposed to credit risk in connection with its signifi cant project
business in the fi elds of public infrastructure and transport, healthcare, utilities
and IT where direct or indirect fi nancing in various forms may be provided to cus-
tomers. In limited cases, the Company may also take an equity interest as part of
the project fi nancing.
The Company is also exposed to credit risk via its leasing activities, primarily
related to medical engineering, data processing equipment and industrial and
consumer products of third party manufacturers. Siemens’ credit risk regarding
such activities presents additional risks as the volume of such transactions is
higher, customers tend to be smaller for which transparent credit histories are
often not available.
Credit risk is defi ned as an unexpected loss in cash and earnings if the cus-
tomer is unable to pay its obligations in due time, if the value of property that
serves as collateral declines, or if the projects Siemens has invested in are not suc-
cessful. The effective monitoring and controlling of credit risk is a core compe-
tency of our risk management system. Corporate Treasury has implemented a
group-wide binding credit policy. Hence, credit evaluations and ratings are per-
formed on all customers with an exposure or requiring credit beyond a centrally
defi ned limit.
September 30,
(€ in millions) 2007 2006
Cash and cash equivalents 4,005 10,214
Current available-for-sale fi nancial assets 193 596
Total liquidity 4,198 10,810
Short-term debt and current maturities of long-term debt 5,637 2,175
Long-term debt 9,860 13,122
Total debt 15,497 15,297
Net liquidity (11,299) (4,487)