Return to Cost Ratio
So far the analysis of the sustainability performance focused on the absolute Sustainable Value of the individual chemical companies. The absolute amount of Sustainable Value created is linked to the size of the company in question. The Return to Cost Ratio is a relative benefit-cost-ratio that takes into consideration the size of the company. The table below shows the Return to Cost Ratio, i.e. the ratio of cash flow to opportunity costs, for each of the nine companies.
Making provisions for the size of the companies allows a more meaningful comparison of the resource efficiency of the individual companies. A comparison with the results of the absolute Sustainable Value of chemical companies shows that the negative/positive signs are identical in each case: A company that uses its bundle of resources more efficiently than the peer group on average and thus creates a positive absolute Sustainable Value logically achieves a positive Return to Cost Ratio as well.
As with our analysis of absolute Sustainable Value, only Air Liquide and BASF thus have consistently positive Return to Cost Ratios over the entire review period; AKZO, DOW and DSM fall below the industry average in every year studied. BASF, who ranks second in absolute Sustainable Value in 2004, drops down to rank 4 when taking into account company size. With an RCR of 1.3 : 1, BASF used its resources 1.3 times more efficiently than the peer group average in that year. The least efficient company in 2004 is DOW which used its resources 2.2 times less efficiently than the peer group average (RCR 1 : 2.2). In other words, with the amount of resources with which the average company in the peer group generated a cash flow of € 1, DOW only generates about € 0.45 (1/2.2= 0.45).
Taking company size into consideration, Air Liquide is the most resource efficient company within this survey for the years 2005 (1.6 : 1), 2006 (1.5 : 1) and 2007 (1.7 : 1). In other words, in 2007 Air Liquide generated 1.7 times more cash flow with the 13 resources considered in this study than the peer group on average. Bayer and BASF both show a RCR of 1.2 : 1. This means that Bayer and BASF both generated 20% more cash flow with the resources assessed in this survey than the nine chemical companies assessed on average would have created with those resources. Apart from DuPont, which also used its resources more efficiently than the benchmark, the remaining four companies considered in this assessment all show an RCR of 1 : 1.7 and 1 : 1.8 respectively. This means that they created 41% (= 1-1/1.7) and 44% (= 1-1/1.8) less cash flow with the resources used than the other companies on average would have generated with the same set of resources.
- Return to Cost Ratio of chemical companies (graphic representation - please click to open in new window). [33 KB]
The above graphic presentation of the RCRs illustrates the described performance patterns. In contrast to its isolated position in the absolute Sustainable Value, it can be seen that DOW uses its resources as inefficiently as DSM when company size is taken into account. The developments of the RCRs are analysed in detail for each company in the full version of the study.