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Alternative performance measures: definitions and reasons for use

Metric Definition Reason for use
Capital employed (CE)

Working capital + net intangible assets + net goodwill + net property, plant and equipment. The weighted average CE is weighted by the number of periods that an entity has contributed to the consolidated result.

Capital employed consists of the main balance sheet items that operating management can actively and effectively control to optimize its financial performance, and serves as the denominator of ROCE.

Capital ratio (financial autonomy) Equity relative to total assets.
This ratio provides a measure of the extent to which the Group is equity-financed.
Combined figures

Sum of consolidated companies + 100% of joint ventures and associates after elimination of intercompany transactions (if any). Examples: sales, capital expenditure, number of employees.

In addition to Consolidated figures, which only comprise controlled companies,combined figures provide useful insights of the actual size and performance of the Group including its joint ventures and associates.

EBIT Operating result (earnings before interest and taxation).

EBIT consists of the main income statement items that operating management can actively and effectively control to optimize its profitability, and a.o. serves as the numerator of ROCE and EBIT interest coverage.

EBIT – underlying

EBIT before operating income and expenses that are related to restructuring programs, impairment losses, business combinations, business disposals, environmental provisions or other events and transactions that have a material one-off effect that is not inherent to the business.

EBIT – underlying is presented to enhance the reader’s understanding of the operating profitability before one-off items, as it provides a better basis for comparison and extrapolation.

EBITDA Operating result (EBIT) + depreciation, amortization and impairment of assets + negative goodwill. EBITDA provides a measure of operating profitability before non-cash effects of past investment decisions.
EBITDA – underlying

EBITDA before operating income and expenses that are related to restructuring programs, impairment losses, business combinations, business disposals, environmental provisions or other events and transactions that have a material one-off effect that is not inherent to the business.

EBITDA – underlying is presented to enhance the reader’s understanding of the operating profitability before one-off items and non-cash effects of past investment decisions, as it provides a better basis for comparison and extrapolation.

EBIT interest coverage
Operating result (EBIT) divided by net interest expense. The EBIT interest coverage provides a measure of the Group’s capability to service its debt through its operating profitability.
Gearing
Net debt relative to equity.

Gearing is a measure of the Group's financial leverage and shows the extent to which its operations are funded by lenders versus shareholders.

Margin on sales EBIT, EBIT-underlying, EBITDA and EBITDA-underlying on sales.
Each of these ratios provides a specific measure of operating profitability expressed as a percentage on sales.
Net capitalization
Net debt + equity.

Net capitalization is a measure of the Group’s total financing from both lenders and shareholders.

Net debt Interest-bearing debt net of current loans, non-current financial receivables and cash guarantees, short-term deposits, cash and cash equivalents. Net debt is a measure of debt after deduction of financial assets that can be deployed to repay the gross debt.
Net debt on EBITDA
Net debt divided by EBITDA.

Net debt on EBITDA provides a measure of the Group’s capability (expressed as a number of years) to repay its debt through its operating profitability.

Return on capital employed (ROCE) Operating result (EBIT) relative to the weighted average capital employed.

ROCE provides a measure of the Group’s operating profitability relative to the capital resources deployed and managed by operating management.

Return on equity (ROE)
Result for the period relative to average equity. ROE provides a measure of the Group’s net profitability relative to the capital resources provided by its shareholders.
Working capital (operating)

Inventories + trade receivables + bills of exchange received + advanced paid - trade payables - advances received - remuneration and social security payables - employment-related taxes.

Working capital includes all current assets and liabilities that operating management can actively and effectively control to optimize its financial performance. It represents the current component of capital employed.