Net income, earnings per share (EPS), and earnings per share pre (EPS pre)
Earnings per share are calculated by dividing profit after tax attributable to the shareholders of Merck KGaA, Darmstadt, Germany (net income) by the weighted average number of theoretical shares outstanding. The use of a theoretical number of shares takes into account the fact that the general partner’s capital is not represented by shares. To provide an alternative view, we also report earnings per share pre, in which the effects of integration expenses, IT expenses for selected projects, restructuring expenses, gains/losses on the divestment of businesses, acquisition expenses, and other adjustments are eliminated. Moreover, amortization of acquired intangible assets as well as impairment losses on property, plant & equipment, and intangible assets are eliminated. The adjustment excludes impairment losses on intangible assets for acquired research and development (R&D) projects below a threshold value of € 50 million. Income tax is calculated on the basis of the company’s underlying tax rate. The following table presents the reconciliation of net income to net income pre for the calculation of EPS pre.
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Change |
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|---|---|---|---|---|---|---|---|---|---|---|---|---|
€ million |
|
2020 |
|
2019 |
|
€ million |
|
in % |
||||
Net income |
|
1,987 |
|
1,320 |
|
667 |
|
50.5% |
||||
Non-controlling interest |
|
7 |
|
3 |
|
3 |
|
96.4% |
||||
Profit after tax from discontinued operation |
|
0 |
|
-28 |
|
28 |
|
-100.0% |
||||
Income tax |
|
637 |
|
440 |
|
197 |
|
44.8% |
||||
Amortization of acquired intangible assets |
|
857 |
|
1,119 |
|
-262 |
|
-23.4% |
||||
Adjustments1 |
|
407 |
|
372 |
|
34 |
|
9.2% |
||||
Income tax on the basis of the underlying tax rate1 |
|
-974 |
|
-807 |
|
-167 |
|
20.7% |
||||
Non-controlling interests to be adjusted |
|
-7 |
|
-3 |
|
-3 |
|
96.4% |
||||
Net income pre1 |
|
2,914 |
|
2,417 |
|
497 |
|
20.6% |
||||
Earnings per share pre1 in € |
|
6.70 |
|
5.56 |
|
1.14 |
|
20.6% |
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|
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Credit rating
The rating of our creditworthiness by external agencies is an important indicator of our ability to raise debt capital at attractive market conditions. The capital market makes use of the assessments published by independent rating agencies in order to assist debt providers in estimating the risks associated with a financial instrument. We are currently assessed by Moody’s, Standard & Poor’s, and Scope. The most important factor for the credit rating is the ability to repay debt, which is determined in particular by the ratio of operating cash flow to net- or gross financial debt.
Dividend ratio
We pursue a reliable dividend policy with a target payout ratio based on EPS pre (see definition above) with the aim of ensuring an attractive return for our shareholders.