The Volkswagen Group’s financial target system focuses on continuously and sustainably increasing the value of the Company. In order to allocate our financial resources efficiently in the Automotive Division, we have been using value contribution*, a control variable linked to the cost of capital, for a number of years.
The concept of value-based management allows the success of our innovative, environmentally oriented product portfolio to be evaluated. This concept also enables the earnings strength of individual business units and projects, such as the new plants in India, Russia and North America, to be measured.
COMPONENTS OF VALUE CONTRIBUTION
Value contribution is calculated using operating profit after tax and the opportunity cost of invested capital. Operating profit reflects the economic performance of the Automotive Division and is initially a pre-tax figure.
Using the various international income tax rates of the relevant companies, in the past we assumed an overall average tax rate of 35% when calculating the operating profit after tax. The business tax reform in Germany reduced this tax rate to an average of 30% in 2008.
The opportunity cost of capital is calculated by multiplying the cost of capital by the invested capital. Invested capital is calculated as total operating assets (property, plant and equipment, intangible assets, inventories and receivables) less non-interest-bearing liabilities (trade payables and payments on account received).
Assets relating to investments in subsidiaries and associates and the investment of cash funds are not included when calculating invested capital because the concept of value-based management is applied solely to our operating activities. Interest charged on these assets is reported in the financial result.
*The value contribution corresponds to the Economic Value Added (EVA®). EVA® is a registered trademark of Stern Stewart & Co.