ROCE
ROCE | 2019 | 2018 | Change | |||
absolute | thereof IFRS | % | ||||
| EBIT adjusted (€ million) | 1,837 | 2,111 | – 274 | +46 | – 13.0 |
Capital employedas of Dec 31 (€ million) | 42,999 | 36,657 | + 6,342 | +4,487 | + 17.3 | |
ROCE (%) | 4.3 | 5.8 | – | –0.4 1) | – | |
1) Percentage points.
ROCE deteriorated by 1.5 percentage points as a result of a decline in adjusted EBIT while the capital employed rose at the same time. The significant growth in capital employed resulted mainly from the first-time application of IFRS 16. This generally causes ROCE to shift to a lower level. At the same time, however, the cost of capital also declined.
| Yieldspread (%) | 2020 | 2019 | 2018 | 2017 | 2016 | |
| ROCE | – | 4.3 | 5.8 | 6.1 | 5.9 |
Cost of capital (pre-tax WACC 1)) | 5.9 | 6.4 2) | 7.0 | 7.3 | 7.7 | |
| Spread (percentage points) | – | –2.1 | –1.2 | –1.2 | –1.8 | |
1) Each value taken at the beginning of the year.
2) Value adjusted for IFRS 16 effect.
In the year under review the negative difference between ROCE and the costs of capital increased. The shortfall is mainly due to the lack of profitability of the RIC and of DB Cargo.
Capital employed
Capital employed | 2019 | 2018 | Change | ||
absolute | % | ||||
| BASED ON ASSETS | ||||
| Property, plant and equipment | 46,591 | 40,757 | + 5,834 | + 14.3 | |
Intangible assets/goodwill | 3,894 | 3,730 | + 164 | + 4.4 | |
Inventories | 1,520 | 1,369 | + 151 | + 11.0 | |
Trade receivables | 4,871 | 4,962 | – 91 | – 1.8 | |
Receivables and other assets | 2,792 | 2,250 | + 542 | + 24.1 | |
Financial receivables and | – 404 | – 174 | – 230 | + 132 | |
Income tax receivables | 60 | 62 | – 2 | – 3.2 | |
Assets held for sale | 0 | 26 | – 26 | – 100 | |
Trade liabilities | – 5,789 | – 5,491 | – 298 | + 5.4 | |
Miscellaneous/other liabilities | – 3,770 | – 3,918 | + 148 | – 3.8 | |
Income tax liabilities | – 190 | – 195 | + 5 | – 2.6 | |
Other provisions | – 5,098 | – 5,068 | – 30 | + 0.6 | |
Deferred items | – 1,478 | – 1,648 | + 170 | – 10.3 | |
Assets held for sale | – | – 5 | + 5 | – 100 | |
Capital employed | 42,999 | 36,657 | + 6,342 | + 17.3 | |
thereof IFRS 16 effect | 4,487 | – | +4,487 | – | |
Capital employed equates to the assets deemed necessary for business and subject to the cost of capital, as derived from the balance sheet. The significant growth in capital employed resulted, above all, from an increase in property, plant and equipment. This resulted from the first-time application of IFRS 16 and the extensive capital expenditure activities.
Cost of capital
The cost of capital is updated annually to take account of changes in market parameters. We take the long-term focus of the controlling concept into consideration and balance out short-term fluctuations.
In the year under review, taking into account adjustments resulting from IFRS 16 effects for DB Group, there was a
decline in costs of capital before taxes from 6.4% to 5.9%. After taxes, there was a cost of capital of 4.1% (previous
year: 4.4%).
We calculate DB Groupʼs cost of capital as a weighted average interest rate of equity, net financial debt and pension obligations. Determined once a year, this reflects current capital market parameters, the prevailing tax framework and the value share of methods used to finance capital employed.
When determining the company-independent capital market parameters, market risk premium and risk-free interest rate, short-term fluctuations in debt and equity market returns are smoothed out in line with the long-term focus of our value management concept. The parameters are determined on the basis of the yields on long-term German bunds as well as the long-term average returns of the German DAX 30 equity index. The parameters used are also validated on the basis of up-to-date recommendations of recognized valuation experts. The company-dependent capital market parameters, beta and credit spread, measure the risk of our debt and equity financing in comparison with alternative forms of investment. Beta reflects the risk of equity capital relative to the risks of the equity markets. The determination is based on comparable international companies at business unit level. The credit spread corresponds to DB Groupʼs current issue costs relative to bonds with an imputed term of ten years. The credit spread for transport and logistics is determined in line with market conditions, using the current capital market data of companies with comparable creditworthiness.
Tax factors are calculated using a taxation rate of 30.5%. The tax factor for net financial debt reflects the trade tax applied to fixed debt interest to be credited. The taxes remaining after this are fully allocated to cost of equity. The weighting of forms of financing is based on market values. Net financial debt and pension obligations are valued at their carrying amounts. Equity weighting is based on recognized business valuation methods.
The weighting of forms of financing for passenger transport, rail freight transport, logistics, infrastructure and the integrated rail system corresponds to that of DB Group as the tax shield resulting from the tax-deductible status of debt interest arises, as a rule, from the fact that DB Group is a consolidated tax group.
