05 Financial performance Report of the Managers 5.1.6 RETURN ON CAPITAL EMPLOYED (ROCE) The return on capital employed by the Group is measured by dividing net operating profit after tax (NOPAT) by the average economic assets employed during the year. In calculating NOPAT, amortization of acquired intangible assets, the Group's share of profit/(loss) from equity-accounted companies and interest on loans to partner companies (excluding pension funds) are added to segment operating income. For 2024, the theoretical tax liability was calculated at a rate of 23%, or two points lower than in prior years (for which the rate was 25%). This aligned the theoretical rate with the Group’s effective tax rate, which has averaged close to 23% over the past four years. Non-euro currencies are translated at year-end rates for balance sheet items and average rates for income statement items. If ROCE is greater than the weighted average cost of capital (WACC) for the year, then the Group has created value during the period. Based on a theoretical balance between equity and debt, depending on the financed assets, the Group's weighted average cost of capital (WACC) has been estimated at 9% since 2022, which is in line with external benchmarks. The rates used are determined (i) for equity capital, based on the yield on Michelin shares expected by the stock markets; and (ii) for debt capital, on the market risk-free rate plus the risk premium applied to Michelin by the markets, as adjusted for the tax effect. ROCE narrowed by 0.9 points year-on-year to 10.5% in 2024, as a result of the following factors: n the reduction in segment operating income; n the decline in the Group’s share of loss/(profit) from equityaccounted companies compared with 2023, when it was boosted by non-recurring gains from TBC’s disposal of its retail operations and the sale of a one-third equity stake in Symbio; n the positive impact of using a lower average tax rate in the calculation. (in € millions) 2024 2023 Segment operating income restated for ROCE calculation 3,280 3,608 Average standard income tax rate used for ROCE calculation 23% 25% Segment operating income after tax (NOPAT) 2,516 2,706 Economic assets at December 31 24,169 23,584 Average economic assets 23,883 23,836 Consolidated ROCE 10.5% 11.4% 347 2024 UNIVERSAL REGISTRATION DOCUMENT_MICHELIN
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