Financial performance 2024 consolidated financial statements 05 17.2.9 Capital risk management The Group's objectives when managing its capital are to protect its ability to continue as a going concern and to ensure its development, so that it can provide returns for shareholders and benefits for other stakeholders. The main indicator used for capital management purposes is gearing. Gearing corresponds to the ratio of net debt to equity. (in € millions) December 31, 2024 December 31, 2023 Net debt (note 9.3) 3,112 3,281 Total equity 18,634 17,958 GEARING 0.17 0.18 17.3 Classification and fair values of financial assets and liabilities ACCOUNTING POLICIES Fair value of financial instruments Fair value measurements are disclosed by level in the following fair value measurement hierarchy: n Level 1: quoted prices in active markets. The fair value of financial instruments traded in active markets is based on quoted market prices at the date of the consolidated statement of financial position. A market is regarded as active if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service, or regulatory agency, and those prices represent actual and regularly occurring market transactions on an arm's length basis. The quoted market price used for financial assets held by the Group is the current bid price. These instruments, essentially cash and cash equivalents, as well as quoted unconsolidated equity investments, are included in level 1. n Level 2: inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (i.e., as prices) or indirectly (i.e., derived from prices). The fair value of financial instruments that are not traded in an active market (for example, over-the-counter derivatives) is determined by using valuation techniques. These valuation techniques maximize the use of observable market data where it is available and rely as little as possible on entity-specific estimates. If all significant inputs required to fair value these instruments are observable, these instruments, essentially cash management financial assets and derivative instruments, are included in level 2. n Level 3: inputs for assets or liabilities that are not based on observable market data (i.e., unobservable inputs). If one or more of the significant inputs is not based on observable market data, the instrument, essentially non-quoted unconsolidated equity investments, is included in level 3. Specific valuation techniques used to value, generally internally, financial instruments include: n quoted market prices or dealer quotes for similar instruments (level 1); n the fair value of interest rate swaps calculated internally as the present value of the estimated future cash flows based on observable yield curves (level 2); and n the fair value of forward foreign exchange contracts determined internally using spot exchange rates at the date of the consolidated statement of financial position, applied to discounted future cash flows (level 2). Other techniques, such as discounted cash flow analysis, are used internally to determine fair value for the remaining financial instruments (level 3). The Group assesses the counterparty risk included in the fair value of its over-the-counter derivatives for which there is no exchange of collateral. The Group includes the effect of its exposure to the credit risk of the counterparty or the counterparty’s exposure to the credit risk of the Group. The valuation for long-term derivatives with no exchange of collateral is based on discounted cash flows using a rate including the counterparty credit risk. 424 2024 UNIVERSAL REGISTRATION DOCUMENT_MICHELIN
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