Service
General
Information
 
Last Update: 03/12/2009
previous pageend of pagenext page
Part of the audited Consolidated Financial Statements and Management´s Analysis

Value-based management

We earn a premium on our cost of capital

We increase BASF’s value by earning a premium on our cost of capital. Our value-based management concept is a comprehensive approach that includes all functions within the company and supports and encourages all employees in acting in an entrepreneurial manner.

EBIT after cost of capital

Earnings before interest and taxes (EBIT) after cost of capital is the key performance and management indicator for our operating divisions and business units. The BASF Group must achieve an EBIT at least as high as its cost of capital to meet the interest rates payable to providers of debt, to satisfy the returns expected by providers of equity, and to cover tax expenses.

  Download (Download XLS xls, 17 kB)

Calculation of EBIT after cost of capital (million €)

 

 

2008

1

The projected net expense is already provided for in the cost of capital percentage.

2

10% on the average operating assets of the segments

EBIT BASF Group

6,463

less EBIT for activities not assigned to the segments1

(930)

less noncompensable foreign income taxes for oil production

1,851

less cost of capital2

3,921

EBIT after cost of capital

1,621

Calculation of the cost of capital percentage


The cost of capital percentage depends primarily on three factors:
  • the capital structure of the BASF Group
  • the level of interest rates on debt and
  • the return expected by shareholders

We calculate our cost of equity on the basis of the market value of BASF shares; we calculate the cost of external financing based on book value. The cost of capital percentage is reviewed annually in the light of current data. The cost of capital percentage for 2008 was 10%. The cost of capital percentage for 2009 will be 9% due to the higher degree of leverage.

EBIT after cost of capital (million €) Five-year summary 1

EBIT after cost of capital (million €) – Five-year summary (bar chart)

1 Since January 1, 2008, Group corporate costs are no longer allocated to the segments, but rather reported under “Other.” The previous years’ figures were not adjusted.

Value-based management throughout the company


Value-based management is only successful if it is firmly rooted in the company and consistently implemented. An important factor in ensuring its successful implementation is achieved by linking the goals of BASF to the target agreements of employees. In operating units, EBIT after cost of capital is the most important performance indicator. The performance of functional units, in other words of regions, sites, corporate units and competence centers, are frequently harder to determine in monetary terms. The most important performance indicator for functional units is therefore value contribution. Two general value drivers upon which we evaluate the performance of the units result from this: efficiency and effectiveness.

A wide range of training programs provide our employees worldwide with relevant information on value-based management. In this way, we want to make our employees more aware of business contexts, thus furthering entrepreneurship at all levels of BASF.

In groups which span entire units, several thousand employees from specialist and managerial positions have applied the principles of value-based management to specific, practical examples.

previous pageto topnext page