Siemens 2009 Annual Report Download - page 143

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 Managing Board statements, Independent auditors’ report, Additional information
95 Net assets position 97 Report on post-balance sheet date events
98 Risk report
108 Information required pursuant to
§315 (4) HGB of the German Commercial
Code and explanatory report
114 Compensation report
114 Report on expected developments
In addition to the operational performance measures just dis-
cussed, we use several other metrics to assess the economic
success of our business activities. To determine whether a par-
ticular investment is likely to generate value for Siemens, we
use ROCE, net present value or economic value added (EVA).
The latter considers the cost of capital in calculating value cre-
ation, by comparing the expected earnings of an investment
against the cost of capital employed. To measure our liquidity
management, we analyze the net working capital turns of our
operating activities, as well as additions to intangible assets
and property, plant and equipment as a percentage of amorti-
zation and depreciation. For the latter measure, we have set
a target of 95 – 115%.
Capital structure management
We have also adopted a measure for capital structure manage-
ment to complement our operational performance measures.
We seek to optimize our capital structure so that we can better
manage our debt-equity ratio while ensuring both unrestricted
access to debt financing instruments in the capital markets
and our ability to meet scheduled debt service obligations.
Our capital efficiency measure is return on capital employed
(ROCE). This measure assesses our income generation from
the point of view of our shareholders and creditors, who pro-
vide us with capital. ROCE is defined as Income from continu-
ing operations (before interest) divided by average capital em-
ployed. Income from continuing operations (before interest) is
defined as Income from continuing operations (as presented
in the Consolidated Financial Statements) excluding Other in-
terest income (expense), net (as presented in the Notes to
Consolidated Financial Statements) and excluding taxes on
Other interest income (expense), net. Capital employed is de-
fined as Total equity plus Long-term debt plus Short-term debt
and current maturities of long-term debt minus Cash and cash
equivalents, each as presented in the Consolidated Financial
Statements, and plus Liabilities associated with assets classi-
fied as held for disposal minus Assets classified as held for dis-
posal, if relating to discontinued operations and as presented
in the “Notes to Consolidated Financial Statements.” Our goal
is to achieve ROCE in the range of 14 – 16%.
Another operational performance measure is cash conversion
rate (CCR), which shows us how much of our income we are
converting to free cash flow. The calculation of CCR is shown
below. Free cash flow presented in the Notes to Consolidated
Financial Statements is defined as Net cash provided by (used
in) operating activities (continuing operations) minus Addi-
tions to intangible assets and property, plant and equipment
(continuing operations). Our target for CCR is 1 minus our an-
nual organic revenue growth rate.
ROCE (continuing operations)
FY 2009 6.1%
FY 2008 4.8%
Target corridor: 14 – 16%
1 Adjusted by the net of assets classified as held for disposal less liabilities associated
with assets classified as held for disposal.
Income from continuing operations (before interest)
× 100%
Average capital employed
1
B25G010_E
Cash conversion rate (continuing operations)
FY 2009 1.54
FY 2008 3.09
Target: 1 minus revenue growth rate
Free cash flow from continuing operations
Income from continuing operations
B25G011_E