Business development

ROCE

ROCE

2020

2019

Change

absolute

%

 

EBIT adjusted (€ million)

2,903

1,837

4,740

  Capital employed as of Dec 31 (€ million)

41,764

42,999

1,235

2.9

ROCE (%)

7.0

4.3

The significant deterioration in ROCE was mainly due to the sharp decline in adjusted EBIT caused by the effects of Covid-19. Capital employed fell slightly as of December 31, 2020.

Yield spread (%)

2021

2020

2019

2018

2017

 

ROCE

7.0

4.3

5.8

6.1

  Cost of capital (pre-tax WACC 1))

6.2

5.9

6.4

7.0

7.3

Spread (percentage points)

12.9

2.1

1.2

1.2

1) Each value taken at the beginning of the year.

In 2020, the negative difference between ROCE and the cost of capital increased significantly as a result of the negative ope­­­rating profit caused by the effects of Covid-19. The lack of profitability of the RIC and of DB Cargo in previous years was worsened by the development in 2020.

Capital employed as of Dec 31 (€ million)

2020

2019

Change

absolute

%

 

BASED ON ASSETS

Property, plant and equipment

47,704

46,591

+1,113

+2.4

  Intangible assets/goodwill

2,290

3,894

1,604

41.2

  Inventories

1,937

1,520

+417

+27.4

  Trade receivables

4,849

4,871

22

0.5

  Receivables and other assets

3,345

2,792

+553

+19.8

  Financial receivables and earmarked

bank deposits (not including
receivables from finance leases)

625

404

221

+54.7

  Income tax receivables

55

60

5

8.3

  Held-for-sale assets

0

0

  Trade liabilities

6,312

5,789

523

+9.0

  Miscellaneous/other liabilities

4,042

3,770

272

+7.2

  Income tax liabilities

191

190

1

+0.5

  Other provisions

6,041

5,098

943

+18.5

  Deferred items

1,205

1,478

+273

18.5

Capital employed 

41,764

42,999

1,235

2.9

Capital employed equates to the assets deemed necessary for business and subject to the cost of capital, as derived from the balance sheet. Capital employed declined slightly in 2020. This was mainly due to a decline in goodwill as a result of impairments at DB Arriva, an increase in other provisions and higher trade liabilities. This was partially countered in particular by an increase in property, plant and equipment driven by capital expenditures, higher receivables and other assets and increased inventories.

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 2020, there was an increase in the pre-tax cost of capital from 5.9 % to 6.2 % for DB Group, mainly due to Covid-19. After taxes, there was a cost of capital of 4.3 % (previous year: 4.1 %). We calculate DB Group’s cost of capital as a weighted average interest rate of equity, hybrid capital, net financial debt and pension obligations. Determined annually, this reflects current capital market parameters, the prevailing taxframework 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 Federal Government bonds with an imputed term of twelve 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.

Taxfactors are calculated using a taxation rate of 30.5 %. The taxfactor 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.

Determining cost of capital

Capital market parameters
Cost of capital
Tax factor
Cost of capital (WACC)
  • Beta
    Un­levered0.590.610.790.490.52

    Levered
    1.431.481.931.191.28
    Market risk premium
    6.6
    Risk-free interest
    0.90
    Credit spread
    0.901.301.300.900.90
  • Equity
    10.410.713.68.89.4
    Hybrid capital
    2.22.62.62.22.2
    Debt capital
    1.82.22.21.81.8
  • 1.441.441.441.441.44
    1.041.041.041.041.04
    1.041.041.041.041.04
    1.001.001.001.001.00
  • Equity
    14.915.419.612.613.5
    Weighting1)
    33.4
    Hybrid capital
    2.22.72.62.22.2
    Weighting1)
    4.2
    Net financial debt
    1.92.32.31.91.9
    Weighting1)
    50.6
    Pensions obligations
    1.82.22.21.81.8
    Weighting1)
    11.8
  • Pre-tax
    WACC
    6.26.78.15.55.7
    Tax shield
    100‑30.5
    WACC
    after
    taxes
    4.34.65.63.84.0

Click on the colored buttons to display or hide the relevant figures in the diagram.

1) Impact of capital structure is reflected only in the tax shield; because DB Group is a consolidated tax group, the capital structure of DB Group is used.
Individual figures are rounded and therefore may not add up.
As of December 31, 2020 (%).

1) Impact of capital structure is reflected only in the tax shield; because DB Group is a consolidated tax group, the capital structure of DB Group is used.
Individual figures are rounded and therefore may not add up.
As of December 31, 2020 (%).

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