2005-2006 Financial Statements and Management Report

FINANCIAL STATEMENTS AND MANAGEMENT REPORT Business management – goals and strategy
In addition to tkva, cash flow is also taken into consideration to ensure that, especially in growth
phases, the Group portfolio comprises a balanced mix of value drivers and cash providers.
An alternative method of calculating tkva using absolute figures is as follows: earnings before interest
and taxes (ebit) minus cost of capital. Cost of capital represents the expected return on equity and
debt. It corresponds to the product of wacc and average capital employed.
The weighted average cost of capital (wacc) is the minimum return demanded by investors and
creditors. It is calculated on a pre-tax basis and comprises the weighted average cost of equity and
debt as well as the interest rate for pension obligations.
The cost of equity of our Group is based on the return from a risk-free alternative investment plus
a market risk premium and taking into account the specific risk of ThyssenKrupp in relation to the
overall market. The specific risk is expressed by the so-called beta factor. The weighted average
cost of equity calculated on this basis corresponds to a weighted average cost after operating taxes.
Since the cost of capital at ThyssenKrupp is calculated on a pre-tax basis, a tax adjustment is
carried out.
The cost of debt (cost of financial liabilities) is the interest on a risk-free alternative investment plus a
company-specific risk premium. Based on the current market situation and subject to the condition
that the current investment-grade status is maintained, we currently base our calculations on a premium
of one percentage point.
The interest rate for pension accruals is calculated on the basis of the weighted 5-year average
discount rate for internally financed pension plans and healthcare obligations.
On the basis of the above factors, the weighted average cost of capital for the Group is currently 9%.
Since the business environment is constantly changing, the weighted average cost of capital is regularly
reviewed and adjusted if necessary. Specific wacc figures are established for the segments which
reflect their respective risk structures.
wacc for the segments in %
Steel
Stainless
Automotive
Technologies
Elevator
Services
9.5
9.5
9.5
9.5
8.5
9.0
OUR OBJECTIVE IS A BALANCE
OF VALUE DRIVERS AND CASH
PROVIDERS.
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