Securit as financial model REL A TIONSHIP BE T WEEN INC O ME CASH FL O W AND B AL ANCE SHEE T St atement of income The s t atement of income is brok en do wn accor din g to function makin g responsibilit y for each proft le v el clear M ana g er s with oper ational responsibilit y can easily see what is e xpected of them and concentr ate on the factor s the y can afect Gross mar g in and oper atin g mar g in are k e y indicator s and used in re viewin g oper ations at both divisional and Group le v el Amortization of acquisitionrelated int an g ible assets acquisi tionrelated cos ts fnancial items and t ax es are monitored separ ately St atement of cash fo w In principle oper atin g income should g ener ate the same amount of cash fo w from oper atin g activities The cash fo w is afected b y in v es t ments in and depreciation of noncurrent t an g i ble and int an g ible assets used in oper ations and b y chan g es in w orkin g capit al Cash fo w from oper atin g activities is an import ant indicator at oper ational le v el It is defned as oper atin g income less in v es tments in noncurrent t an g ible and int an g ible assets plus re v er sal of deprecia tion chan g e in accounts receiv able and chan g e in other oper atin g capit al emplo y ed F ree cash fo w is cash fo w from oper atin g activities less net fnancial items paid and cur rent t ax es paid Cash fo w for the y ear is arriv ed at when cash fo w relatin g to acquisitions and shareholder s equit y is deducted from free cash fo w The consolidation of net debt in foreign currencies usually g ener ates a tr anslation difer ence that is reported separ ately In addition accountin g s t andar ds require that cert ain elements of the net debt are re v alued to mark et v alue after the initial recognition and this re v alu ation is also reported separ ately The chan g e in net debt corresponds to cash fo w for the y ear plus the chan g e in loans tr anslation diferences and also the re v aluation of fnancial ins truments B alance sheet Securit as uses the terms capit al emplo y ed and fnancin g of capit al emplo y ed to describe the balance sheet and fnancial position Capit al emplo y ed consis ts of oper atin g capit al emplo y ed plus g oodwill acquisitionrelated int an g ible assets and shares in associated com panies Oper atin g capit al emplo y ed which consis ts of oper atin g noncurrent t an g ible and int an g ible assets and w orkin g capit al is continuously moni tored at the oper atin g le v el to a v oid un necessar y tiedup capit al Capit al emplo y ed is fnanced b y net debt and shareholder s equit y This picture sho ws the connection bet w een the s t atement of income the s t atement of cash fo w and the balance sheet Diferent color s are used for the sak e of clarit y Oper atin g items Net debt related items G oodwill t ax es and nonoper atin g Items Items related to shareholder s equit y T ot al sales Oper atin g income before amortization Oper atin g noncurrent t an g ible and int an g ible assets Organic sale s gro w th In v es tments in noncurrent t an g ible and int an g ible assets Accounts receiv able Production e xpenses R e v er sal of depreciation Other oper atin g capit al emplo y ed Gross income Net in v es tments in noncurrent t an g ible and int an g ible assets Oper atin g capit al emplo y ed Gro s s margin Chan g e in accounts receiv able Br anch ofce e xpenses Chan g e in other oper atin g capit al emplo y ed Other sellin g and adminis tr ativ e e xpenses Cash fo w from oper atin g activities Oper atin g income before amortization Net fnancial items paid Operating margin Current t ax es paid F ree cash fo w Acquisitions Shareholder s Amortization of net debt FINANCIAL K E Y FIGURE S AND HO W WE U SE THEM Securit as model focuses on the factor s that impact proft and are clearly link ed to oper a tions F actor s are grouped into cate g ories v ol umerelated factor s efcienc y related factor s and capit alusa g erelated factor s These factor s are then assigned k e y fgures that are measured continuously allo win g mana g er s to mak e deci sions based on facts enablin g them to mak e quick adjus tments if needed The model is also used when analy zin g acquisition t ar g ets The factor s and k e y fgures are used throug h out our oper ations from br anch le v el up to Group le v el Six k e y fgures represent the back bone of the model hig hlig hted in the te xt and t able but there are complement ar y k e y fgures used b y all divisions such as or ganic sales gro wth and oper atin g mar g in There are also complement ar y k e y fgures t ailored to the mea surement needs of a particular business se g ment In Securit y Ser vices North America Secu rit y Ser vices Europe and Securit y Ser vices Ibero America which ofer specializ ed securit y ser vices to lar g e and mediumsiz ed cus tomer s gross mar g in on new sales and on terminations as w ell as the w a g e cos t increase are particularly import ant k e y fgures F or oper ations within M obile and M onitorin g new cancelled connec tions prospects visited cos t per sale or der a v er a g e contr act siz e and pa yback dur ation are the k e y fgures that are monitored closely 50 Securit as Annual R eport 2012 G o v ernance and mana g ement M ana g ement and fnancial control