✓ audited

Value-based management

We add value as one company

“We add value as one company” is one of the four principles of our “We create chemistry” strategy. To create value in the long term, a company’s earnings must exceed the costs of stockholders’ equity and debt capital. This is why we strive to earn a premium on our cost of capital of at least €2.5 billion on average per year. To secure BASF’s long-term success, we encourage all employees to think and act entrepreneurially within the framework of our value-based management concept. Our goal: to create awareness about how every employee can find value-oriented solutions and implement these in an efficient and effective manner in day-to-day business.

EBIT after cost of capital

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

Earnings before interest and taxes (EBIT) after cost of capital is the key performance and management indicator for our operating divisions and business units. This figure takes into account that BASF’s shareholders and creditors expect a return on the capital they provide. When we earn a premium on our cost of capital, we exceed the return expected by our shareholders.

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.

Borrowing costs comprise interest payments for bank loans and for liabilities to the capital markets. The cost of equity corresponds to the returns expected by shareholders. This is determined by the market value of BASF shares and with the help of the Capital Asset Pricing Model (CAPM).

An EBIT threshold is determined based on the cost of capital and income taxes. The BASF Group’s operating units combined need to reach this threshold in order to earn the cost of capital. The cost of capital percentage is the ratio between this minimum EBIT level and the assets of the BASF Group’s operating units. In 2012, the cost of capital percentage was 11%; it will be at the same level in 2013.

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Calculation of EBIT after cost of capital (million €)





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


In 2011 and 2012, the cost of capital percentage was 11%.




Less EBIT for activities not assigned to the segments 1



Less non-compensable foreign income taxes for oil production



Less cost of capital 2



EBIT after cost of capital



Value-based management throughout the company

Value-based management is only successful if it is firmly rooted in the company. For us, value-based management is the daily value-oriented performance of all our employees. We have identified value drivers that show how each individual unit in the company can create value. We develop performance indicators for the individual value drivers that help us to plan and pursue changes.

An important factor in ensuring the successful implementation of value-based management is linking the goals of BASF to the individual target agreements of employees. In the operating units, the most important performance indicators are the achievement of a positive EBIT after cost of capital and a competitive return. In contrast, the value contribution of the functional units is evaluated on the basis of effectiveness and efficiency.

According to our value-based management concept, all employees can make a contribution in their business to help ensure that we earn the targeted premium on our cost of capital. Around the world, we raise awareness of this topic among our team through numerous training programs, thereby promoting more entrepreneurial thinking at all levels within BASF. Information relevant to the principles of the Global Compact