Chief executive's review The Pearson goals


Chief executive's review
The Pearson goals
Introduction
Underlying sales growth
Trading margin
Adjusted earnings per share
Cash conversion
Free cash flow
Return on invested capital




Return on invested capital

Over the last few years, the transformation of Pearson has significantly increased the capital invested in the business (in the form of goodwill associated with the acquisitions necessary to build our market-leading businesses) and required substantial cash investment to integrate those acquisitions and to deliver an increasing proportion of our publishing and services online. With that transformation now largely complete, we are in a strong position to improve, each year, our return on invested capital.

We define ROIC as operating profit less cash tax as a percentage of our net operating assets plus total goodwill (that is, before goodwill amortisation). In 2002, our ROIC was 6%, up from 4.6% in 2001. Our cost of capital is a little lower than 8%. Our goal is to generate returns on invested capital above the cost of our capital as soon as possible.

RETURN ON INVESTED CAPITAL 2002   2001  
RETURN (OPERATING PROFIT
LESS CASH TAX)
419m $675m 394m $634m
TOTAL INVESTED CAPITAL 6,976m $11,231m 8,584m $13,820m
RETURN ON INVESTED CAPITAL 6.0%   4.6%  


Going forward, we have two main levers to improve returns: increasing operating profit and reducing the level of operating assets. How quickly we can generate returns above our cost of capital will be dependent on a number of factors such as the business advertising environment.


 
 
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Pearson Broadband has partnered with Pearson Education to develop KnowledgeBox, a digital learning system that helps teachers create multimedia lessons in reading, maths, science and social studies. It contains over 1,500 digital resources and material from leading publishers including Longman, Puffin, Penguin and Dorling Kindersley. KnowledgeBox is being used by schools in 21 states across the US and was launched in the UK in early 2003.

   
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