Siemens 2007 Annual Report Download - page 35

Fit42010 35
Our recent acquisitions of Diagnostic Products Corporation (DPC), Bayer Diagnostics and, most
recently, Dade Behring have doubled the overall market served by the Medical Solutions Group
to €57 billion and given the Group access to further attractive market segments. That’s why
we’ve raised Med’s target margin range to 14 – 17%.
However, to be truly successful, we must do more than generate profi table growth. What’s
equally important, we must also ensure that we’re achieving a satisfactory ratio between our
earnings and the capital we use in our business activities, that these activities generate a suffi -
cient amount of cash and that we have an excellent capital structure.
To measure the relation between our earnings and the capital our businesses use, we’ve adopt-
ed the metric return on capital employed (ROCE, see also page 109). ROCE, which is commonly
used to compare the performance of one business with that of another, can be calculated directly
from the fi gures provided in a company’s fi nancial statements: It’s the ratio of income before
interest expense to capital employed. And there’s competition here, too. Most of our main com-
petitors have a better ROCE than we do. To close the gap, we’ve set an ROCE target of 14 – 16%.
To determine how much cash our activities are generating, we’re applying the metric cash
conversion rate (CCR), which is the ratio of free cash fl ow from continuing operations to income
from continuing operations. We’ve set a CCR target of “one minus the Company’s growth rate.”
This target has been adjusted for our growth rate because growth normally requires higher in-
vestments – for example, expenditures for new production capacities and increased inventories
to meet anticipated increases in demand – and higher net working capital. The targets we’ve set
refl ect our goal of achieving capital-effi cient growth.
For the fi rst time, we’re also setting a capital structure target: to achieve a ratio of adjusted
industrial net debt to EBITDA of 0.8 – 1.0 by 2010. This step, which will enable us to optimize
our capital structure, rounds off our new system of fi nancial targets.