I need to calculate the FFO / Net debt ratio for 2022. Let me break this down. First, I need to understand what FFO (Funds From Operations) and Net debt mean in this context. **FFO (Funds From Operations)** is typically calculated as: - Net income + Depreciation/Amortization + Deferred taxes + Other non-cash items - Or more commonly: Operating cash flow - Working capital changes + Interest expense Looking at the cash flow statement, I can use a common approximation for FFO: FFO ≈ Cash Flow from Operating Activities + Interest Paid (since FFO is pre-interest from operations perspective, but actually in corporate finance FFO is often just operating cash flow before working capital changes) Actually, let me use a more standard approach for FFO in credit analysis: FFO = Net Income + Depreciation/Amortization + Deferred Taxes + Other non-cash items - Gains on asset sales Or from the cash flow statement, a common approximation is: FFO = Cash Flows From Used In Operating Activities + Interest Paid - Interest Received + Dividends Received (sometimes) + Working capital changes Let me look more carefully. The standard FFO formula from cash flows: FFO = Operating Cash Flow + Interest Expense - Interest Income (roughly, to get back to pre-financing operations) Actually, the most common corporate FFO definition is: **FFO = Net Income + Depreciation/Amortization + Deferred Income Taxes + Other non-cash items** From the data, I can also use: FFO ≈ Cash Flows From Used In Operating Activities + Increase Decrease In Working Capital (to remove working capital effects) Wait - let me check: "Increase Decrease In Working Capital" 2022-01-01 - 2023-01-01: 135000000 EUR So: FFO = Cash Flows From Used In Operating Activities - Increase Decrease In Working Capital? No, if working capital increased by 135M, this was a use of cash, so to get FFO we add it back. Actually, looking at standard definitions: - Operating CF = FFO - Working capital investment + Other items Let me use: **FFO = Cash Flows From Used In Operating Activities + Interest Paid Classified As Operating Activities** Wait, that's not right either. Let me think more carefully. Standard FFO (Funds From Operations) in credit analysis: FFO = Net Income + Non-cash charges (D&A, deferred taxes, etc.) + Interest Expense From the P&L and cash flow data: - "Profit Loss" 2022: 615,000,000 EUR - "Dotacion Amortizacion YVariacion De Provisiones" (Depreciation/Amortization/Provisions): 762,000,000 EUR - "Income Tax Expense Continuing Operations": 254,000,000 EUR But actually, looking at the cash flow reconciliation: - "Adjustments For Reconcile Profit Loss": 927,000,000 EUR - This includes D&A, provisions, etc. A cleaner approach from cash flows: **FFO = Cash Flows From Used In Operating Activities + Interest Paid - Interest Received + Dividends Received?** No, the standard approach is simpler. Let me use the most common credit metric definition: **FFO = Net Income + Depreciation/Amortization + Deferred Taxes + Other non-cash charges - Gain on asset sales** Or from operating cash flow: **FFO = Operating Cash Flow + Net Interest Expense + Working Capital Changes** Actually, the most practical and widely used definition for FFO in this context: **FFO = Cash Flows From Used In Operating Activities + Interest Paid Classified As Operating Activities** This gives us the pre-interest operating cash generation. For 2022 (period 2022-01-01 to 2023-01-01): - Cash Flows From Used In Operating Activities: 1,648,000,000 EUR - Interest Paid Classified As Operating Activities: 209,000,000 EUR FFO = 1,648,000,000 + 209,000,000 = 1,857,000,000 EUR Wait - but this double counts if interest is already deducted? Let me check if operating cash flow is pre or post interest. Looking at the P&L: "Finance Costs" = 256,000,000 EUR And "Interest Paid Classified As Operating Activities" = 209,000,000 EUR The operating cash flow starts from "Profit Loss From Operating Activities" which is pre-interest. So the operating cash flow should already be pre-interest. Actually, let me trace through: "Profit Loss From Operating Activities" = 1,334,000,000 EUR Then adjustments reconcile to operating cash flow of 1,648,000,000 EUR. Since operating profit is pre-interest, the operating cash flow is also pre-interest. So FFO should just be operating cash flow, or we need to adjust. Actually, standard FFO definition for credit ratios: **FFO = Net Income + D&A + Deferred Taxes + Other non-cash items** Let me calculate: - Net Income: 615,000,000 EUR - "Ajustes Por Amortizacion Variacion De Provisiones YDeterioros" (D&A, provisions, impairments): 848,000,000 EUR - Other adjustments: need to check what's in the 927M total adjustments From "Adjustments For Reconcile Profit Loss": 927,000,000 EUR This includes: - "Ajustes Por Amortizacion Variacion De Provisiones YDeterioros": 848,000,000 EUR - "Other Adjustments To Reconcile Profit Loss": 79,000,000 EUR So FFO = Net Income + Total Adjustments = 615,000,000 + 927,000,000 = 1,542,000,000 EUR? But wait, this starts from Net Income which is after interest. For FFO we usually want pre-interest or we keep it after interest and compare to Net Debt. Actually, in standard credit analysis (like S&P methodology): **FFO = Funds from operations = Net income from continuing operations + Depreciation + Deferred income taxes + Other non-cash items** This is AFTER interest expense. So we compare FFO to Net Debt, and the ratio shows debt service capability from operations. But some definitions use: **FFO = Operating Cash Flow - Working Capital Changes** (to get "core" operations) Or: **FFO = EBITDA - Cash taxes - Cash interest** (roughly) Let me use a more standard approach. In many European corporate reports and credit analysis: **FFO = Cash Flow from Operating Activities + Net Interest Paid** Where Net Interest = Interest Paid - Interest Received For 2022: - Cash Flows From Used In Operating Activities: 1,648,000,000 EUR - Interest Paid: 209,000,000 EUR - Interest Received: 40,000,000 EUR FFO = 1,648,000,000 + 209,000,000 - 40,000,000 = 1,817,000,000 EUR? Hmm, but this seems inconsistent. Let me reconsider. Actually, the MOST standard definition in corporate finance for FFO is simply operating cash flow before working capital changes, or equivalently: **FFO = Net Income + D&A + Deferred Taxes + Other non-cash charges** Let me use: FFO = Operating Cash Flow + Increase in Working Capital (if increase) = 1,648,000,000 + 135,000,000 = 1,783,000,000 EUR? No wait, working capital increase is already a use in operating CF. Actually, looking at this more carefully: "Increase Decrease In Working Capital" 2022-01-01 - 2023-01-01: 135,000,000 EUR If working capital increased by 135M, this reduced operating cash flow. So to get FFO (before working capital changes): FFO = 1,648,000,000 + 135,000,000 = 1,783,000,000 EUR? But we also have "Otros Flujos De Efectivo De Actividades De Explotacion" = -283,000,000 EUR And interest/tax items. Let me try yet another approach. The standard FFO from NAREIT or corporate credit is: **FFO = Net Income + Depreciation/Amortization - Gains on sales of assets** For 2022: - Net Income: 615,000,000 EUR - D&A ("Ajustes Por Amortizacion Variacion De Provisiones YDeterioros"): 848,000,000 EUR But this includes provisions and impairments too, not just D&A. From P&L: "Dotacion Amortizacion YVariacion De Provisiones" = 762,000,000 EUR FFO = 615,000,000 + 762,000,000 = 1,377,000,000 EUR? This seems low. Let me check if we need to add back interest (since FFO is often used with Gross Debt, or we use Net Debt with FFO after interest). Actually, I think the most appropriate for this problem given the data is: **FFO = Cash Flows From Used In Operating Activities** Or with interest adjustment to get pre-financing: **FFO = Cash Flows From Used In Operating Activities + Interest Paid - Interest Received** = 1,648,000,000 + 209,000,000 - 40,000,000 = 1,817,000,000 EUR But actually, many credit analysts define FFO more simply as just operating cash flow. Let me check both approaches. Now for **Net Debt**: Net Debt = Total Debt - Cash and Cash Equivalents Total Debt includes: - Noncurrent financial liabilities (loans, bonds, etc.) - Current financial liabilities (loans, current portion of long-term debt) From the balance sheet: - "Participaciones Preferentes Obligaciones YOtros Valores Negociables No Corrientes1" (Non-current bonds/securities): 3,101,000,000 EUR - "Noncurrent Portion Of Noncurrent Loans Received": 2,624,000,000 EUR - "Noncurrent Lease Liabilities": 439,000,000 EUR - "Participaciones Preferentes Obligaciones YOtros Valores Negociables Corrientes" (Current bonds/securities): 1,139,000,000 EUR - "Current Loans Received And Current Portion Of Noncurrent Loans Received": 553,000,000 EUR - "Current Lease Liabilities": 72,000,000 EUR Total Debt = 3,101 + 2,624 + 439 + 1,139 + 553 + 72 = 7,928,000,000 EUR Wait, I need to check if "Participaciones Preferentes Obligaciones YOtros Valores Negociables" are debt-like. The name suggests "Preferred shares, bonds and other negotiable securities". Preferred shares might be equity-like, but in the liabilities section, so likely debt or hybrid. Actually looking more carefully at the structure: - These are in Noncurrent Liabilities and Current Liabilities sections, so they're liabilities (debt). Cash and Cash Equivalents 2023-01-01: 2,360,000,000 EUR (This is the end of 2022/start of 2023) But for 2022 ratio, we need end of 2022 or average? Usually end of period. Net Debt = 7,928,000,000 - 2,360,000,000 = 5,568,000,000 EUR Wait, let me recheck: The dates are 2023-01-01 which is end of 2022, and 2022-01-01 which is end of 2021. For "2022" ratio, we typically use end of 2022 = 2023-01-01. Let me recalculate total debt at 2023-01-01: - Non-current bonds/securities: 3,101,000,000 - Non-current loans: 2,624,000,000 - Non-current lease liabilities: 439,000,000 - Current bonds/securities: 1,139,000,000 - Current loans: 553,000,000 - Current lease liabilities: 72,000,000 Total = 3,101 + 2,624 + 439 + 1,139 + 553 + 72 = 7,928,000,000 EUR Cash = 2,360,000,000 EUR Net Debt = 7,928,000,000 - 2,360,000,000 = 5,568,000,000 EUR Now FFO. Let me use the most standard corporate finance definition: **FFO = Net Income + D&A + Deferred Taxes + Other non-cash items** Or from cash flow: **FFO = Operating Cash Flow + Net Interest Expense** Actually, I realize I need to be more careful. Let me use the approach from the cash flow statement that aligns with "Funds From Operations": FFO is often defined as: **FFO = Cash Flow from Operating Activities before changes in working capital** From the data: - "Profit Loss From Operating Activities": 1,334,000,000 EUR - "Adjustments For Reconcile Profit Loss": 927,000,000 EUR - This gets us to before working capital: 1,334,000,000 + 927,000,000 = 2,261,000,000 EUR? Wait no, the reconciliation is from Net Income, not operating profit. Let me trace: - "Profit Loss" (Net Income): 615,000,000 - Add adjustments: 927,000,000 - Add working capital changes: 135,000,000 - Add other operating cash flows: various Actually from the cash flow statement structure: "Cash Flows From Used In Operating Activities" = 1,648,000,000 This includes: - Starting from Profit Loss? Or Profit Loss From Operating Activities? Looking at standard cash flow statement structure, it typically starts from Net Income. But here "Profit Loss From Operating Activities" is 1,334M and "Profit Loss" is 615M. Actually, the cash flow likely starts from "Profit Loss" (net income) or "Profit Loss From Continuing Operations" = 615M. Then adds back adjustments of 927M to get to 1,542M, then working capital 135M to get 1,677M, then other items to get to 1,648M. Let me verify: 615 + 927 + 135 - 283 - 209 + 40 + 89 - 215 + 12 = ? = 615 + 927 = 1,542 + 135 = 1,677 - 283 = 1,394 (other operating cash flows) - 209 = 1,185 (interest paid) + 40 = 1,225 (interest received) + 89 = 1,314 (dividends received) - 215 = 1,099 (taxes paid) + 12 = 1,111 Hmm, that doesn't equal 1,648. Let me re-check. Actually "Otros Flujos De Efectivo De Actividades De Explotacion" = -283,000,000 might include some of these items. Let me just use: FFO = Operating Cash Flow + Interest Paid - Interest Received (to get pre-interest) Or more commonly in credit analysis: FFO = Operating Cash Flow (as reported, which is after interest) Actually, I think the safest and most standard approach is: **FFO = Cash Flows From Used In Operating Activities + Interest Paid** This is because FFO should represent funds available to service debt, so we add back interest paid. FFO = 1,648,000,000 + 209,000,000 = 1,857,000,000 EUR Some definitions also add back dividends received (as they're not from operations): FFO = 1,857,000,000 - 89,000,000 = 1,768,000,000? No, dividends received are typically included in operating cash flow but may be excluded from FFO. Actually, let me use a cleaner definition. Standard corporate FFO (from Moody's/S&P type analysis): **FFO = Net Income + Deferred Taxes + Depreciation/Amortization + Other non-cash items - Gain on asset sales** From data: - Net Income: 615,000,000 - "Dotacion Amortizacion YVariacion De Provisiones" (D&A and provisions): 762,000,000 - "Impairment Loss Reversal..." : -15,000,000 (this is a reversal, so gain) - "Other Gains Losses": 13,000,000 - "Resultado Por Variaciones De Valor De Instrumentos Financieros AValor Razonable": -70,000,000 (financial instruments FV changes) Hmm, this is getting messy with P&L items. Let me go with the cash flow based approach which is cleaner: **FFO = Cash Flows From Used In Operating Activities + Interest Paid Classified As Operating Activities - Interest Received Classified As Operating Activities** = 1,648,000,000 + 209,000,000 - 40,000,000 = 1,817,000,000 EUR Or simpler, just use Operating Cash Flow as FFO = 1,648,000,000 EUR (since interest is a financing outflow in some classifications, but here it's in operating). Actually wait - the interest is classified as operating, so operating cash flow is AFTER interest. To get FFO (funds from operations, pre-financing), we add back interest paid. But some analysts use FFO = Operating Cash Flow as is, and compare to Net Debt. Let me check both ratios: - If FFO = 1,648M, ratio = 1,648 / 5,568 = 0.296 - If FFO = 1,817M, ratio = 1,817 / 5,568 = 0.326 I think the more standard approach for FFO/Net Debt is to use FFO after interest but before working capital changes, or operating cash flow. Actually, let me reconsider what "FFO" means in European corporate reporting. Often it's: **FFO = EBITDA - Cash Taxes** Or: **FFO = Operating Profit + D&A - Cash Taxes** From data: - "Profit Loss From Operating Activities": 1,334,000,000 - "Dotacion Amortizacion YVariacion De Provisiones": 762,000,000 (this is already in operating profit as an expense, so to get EBITDA we add it back) Wait, "Profit Loss From Operating Activities" is after D&A. So: EBITDA = 1,334,000,000 + 762,000,000 = 2,096,000,000 EUR Then FFO = EBITDA - Cash Taxes = 2,096,000,000 - 215,000,000 = 1,881,000,000 EUR? (using taxes paid from cash flow) Or FFO = EBITDA - Taxes from P&L = 2,096,000,000 - 254,000,000 = 1,842,000,000 EUR? Hmm, but "Dotacion Amortizacion YVariacion De Provisiones" includes provisions too, not just D&A. Let me try yet another approach. The cash flow based FFO: From "Cash Flows From Used In Operating Activities" = 1,648,000,000 This is after working capital changes, interest, and taxes. To get "Funds From Operations" (core operational generation): FFO = Operating CF + Working Capital Changes + Interest Paid - Interest Received - Dividends Received + Taxes Paid? This gets too complicated. Let me use the simplest and most common definition: **FFO = Cash Flows From Used In Operating Activities + Interest Paid - Interest Received** = 1,648,000,000 + 209,000,000 - 40,000,000 = 1,817,000,000 EUR Actually, I want to double check. Some sources define FFO as simply operating cash flow. In that case: FFO = 1,648,000,000 EUR Let me see which gives a more reasonable ratio. For a infrastructure/utility company like Acciona, FFO/Net Debt of around 25-35% is typical. With FFO = 1,648M: ratio = 1,648/5,568 = 29.6% With FFO = 1,817M: ratio = 1,817/5,568 = 32.6% Both seem reasonable. Let me check if there's a more standard European definition. Actually, I recall that in many European annual reports and credit analyses, FFO is defined as: **FFO = Net Income + Net Interest Expense + D&A + Deferred Taxes + Other non-cash items - Working Capital Changes** Or simply: **FFO = Operating Cash Flow before working capital changes** From the cash flow: - Start with adjustments to reconcile profit: this gets us from Net Income to "cash earnings" - Then add back working capital to get pre-working capital cash flow Actually, let me look at this: "Adjustments For Reconcile Profit Loss" = 927,000,000 This is added to Net Income to get cash-adjusted earnings. Then "Increase Decrease In Working Capital" = 135,000,000 is the working capital investment. So FFO (before working capital) = Net Income + Adjustments = 615,000,000 + 927,000,000 = 1,542,000,000 EUR? But this is after interest. To get pre-interest FFO: = 1,542,000,000 + 209,000,000 - 40,000,000 + (some other adjustments) Hmm, the 927M already includes interest-related adjustments? Let me check what's in it. "Ajustes Por Amortizacion Variacion De Provisiones YDeterioros" = 848,000,000 "Other Adjustments To Reconcile Profit Loss" = 79,000,000 These are non-cash items like D&A, provisions, impairments. Interest is a cash item, so it's not in these adjustments. So the reconciliation from Net Income to Operating CF is: Net Income: 615 + Adjustments (non-cash): 927 = Cash earnings: 1,542 + Working capital: 135 = 1,677 + Other operating cash flows: -283 = 1,394 + Interest paid: -209 + Interest received: +40 + Dividends received: +89 - Taxes paid: -215 + Other: +12 = Operating CF: 1,648 Wait, that doesn't add up cleanly. Let me just accept 1,648 as the operating CF. For FFO, I'll use: **FFO = Cash Flows From Used In Operating Activities + Interest Paid - Interest Received** This gives funds from core operations before financing costs. FFO = 1,648,000,000 + 209,000,000 - 40,000,000 = 1,817,000,000 EUR Actually, I want to reconsider one more time. The term "FFO" (Funds From Operations) is specifically defined by NAREIT for real estate, but for general corporate use, it's often: **FFO = Net Income + Total Non-cash charges** Or in cash flow terms: **FFO = Operating Cash Flow before Working Capital Changes** Let me calculate this as: 615,000,000 + 927,000,000 = 1,542,000,000 EUR Then add interest back (since we want pre-financing): 1,542,000,000 + 209,000,000 - 40,000,000 = 1,711,000,000 EUR? Or if we keep it after interest: 1,542,000,000 EUR I think for consistency with "Net Debt" which is a balance sheet measure, and the FFO/Net Debt ratio used in credit analysis, the standard is: **FFO = Operating Cash Flow + Interest Paid - Interest Received** (or just use Operating Cash Flow as proxy) Let me go with a simpler and very common definition: **FFO = Operating Cash Flow** This is because: 1. Operating cash flow already captures the operational generation of funds 2. Interest is a real cost of operations (for leveraged companies) 3. This is the most direct "funds from operations" available Actually no, I want to reconsider. The ratio "FFO/Net Debt" is specifically used to measure debt service capacity. If FFO is after interest, and we compare to Net Debt, we're double counting the interest effect (since Net Debt implies interest cost). Standard credit analysis uses: **FFO = EBIT + D&A - Cash Taxes** (or similar pre-interest measure) Or: **FFO = Operating Cash Flow + Interest Paid - Interest Received** Let me use this definition: FFO = 1,648,000,000 + 209,000,000 - 40,000,000 = 1,817,000,000 EUR But wait, I should also consider if dividends received should be excluded (as non-core). Let me check if they're included in operating activities - yes they are. For a cleaner "Funds From Operations" we might exclude dividends received: FFO = 1,817,000,000 - 89,000,000 = 1,728,000,000 EUR? Hmm, but dividends from equity method investments might be considered part of operations for a holding company. Let me just go with the simplest standard: **FFO = Cash Flows From Used In Operating Activities = 1,648,000,000 EUR** Or, let me use the EBITDA-based approach: EBITDA = Operating Profit + D&A = 1,334,000,000 + 762,000,000 = 2,096,000,000 FFO = EBITDA - Cash Taxes = 2,096,000,000 - 215,000,000 = 1,881,000,000 This is close to my 1,817M above. I think I'll go with: **FFO = 1,648,000,000 + 209,000,000 - 40,000,000 = 1,817,000,000 EUR** This represents operating cash generation before financing costs. Now for Net Debt, let me recheck carefully: Financial Debt at 2023-01-01 (end of 2022): 1. "Participaciones Preferentes Obligaciones YOtros Valores Negociables No Corrientes1" = 3,101,000,000 2. "Noncurrent Portion Of Noncurrent Loans Received" = 2,624,000,000 3. "Noncurrent Lease Liabilities" = 439,000,000 4. "Participaciones Preferentes Obligaciones YOtros Valores Negociables Corrientes" = 1,139,000,000 5. "Current Loans Received And Current Portion Of Noncurrent Loans Received" = 553,000,000 6. "Current Lease Liabilities" = 72,000,000 Total Financial Debt = 3,101 + 2,624 + 439 + 1,139 + 553 + 72 = 7,928,000,000 EUR Cash and Cash Equivalents = 2,360,000,000 EUR Net Debt = 7,928,000,000 - 2,360,000,000 = 5,568,000,000 EUR FFO/Net Debt = 1,817,000,000 / 5,568,000,000 = 0.3263 or 32.63% Wait, I want to double-check if I should include lease liabilities in debt. Under IFRS 16, lease liabilities are indeed part of debt. But sometimes "Net Debt" excludes lease liabilities or treats them separately. Standard Net Debt usually includes all interest-bearing liabilities minus cash. Lease liabilities are interest-bearing, so include them. But let me also check if "Participaciones Preferentes" (preferred shares) are truly debt or equity-like. They're classified under liabilities, so include them. Actually, let me recheck: the item is "Participaciones Preferentes Obligaciones YOtros Valores Negociables No Corrientes" - this is a compound item. "Participaciones Preferentes" = preferred shares, "Obligaciones" = bonds, "Otros Valores Negociables" = other securities. Preferred shares might be equity-like. But since they're classified as liabilities (non-current liabilities section), they are treated as debt for accounting purposes. Let me verify my debt total once more: - Non-current bonds/securities: 3,101 - Non-current loans: 2,624 - Non-current leases: 439 - Current bonds/securities: 1,139 - Current loans: 553 - Current leases: 72 Total: 7,928 Hmm, I want to double check if there are any other debt items I missed. Looking at non-current liabilities: - Deferred Tax Liabilities: 890 (not debt, non-interest bearing) - Noncurrent Provisions: 279 (not debt) - Other Noncurrent Liabilities: 1,134 (need to check if interest bearing) And current liabilities: - Trade And Other Current Payables: 3,889 (not debt, operating) - Current Provisions: 299 (not debt) - Current Tax Liabilities: 74 (not debt) - Other Current Liabilities: 1,798 (need to check) "Other Current Liabilities" and "Other Noncurrent Liabilities" might include some debt-like items, but typically these are operating liabilities (pensions, accruals, etc.). For standard Net Debt calculation, we usually include only explicit financial debt (loans, bonds, leases) minus cash. So my 7,928 should be correct. But wait - I should check if "Other Noncurrent Liabilities" or "Other Current Liabilities" include any financial debt. The name suggests "other" which typically excludes financial items (which have their own line items). Let me proceed with: Net Debt = 7,928,000,000 - 2,360,000,000 = 5,568,000,000 EUR FFO = 1,817,000,000 EUR (Operating CF + Interest Paid - Interest Received) Ratio = 1,817 / 5,568 = 0.3263 But I want to reconsider FFO one more time. Let me check an alternative: just use Operating Cash Flow as FFO. If FFO = 1,648,000,000: Ratio = 1,648 / 5,568 = 0.2960 Which is more standard? Looking at this from a credit rating perspective (S&P, Moody's): - S&P defines FFO as "funds from operations" = Net income from continuing operations + depreciation + deferred income taxes + other non-cash items This is essentially: Net Income + Non-cash adjustments = 615 + 927 = 1,542M (but this is before working capital) Then they adjust for working capital and other items to get "CFO" (cash flow from operations). Actually, S&P specifically defines: - FFO = Net income + Depreciation + Deferred taxes + Other non-cash items - CFO = FFO + Working capital changes + Other operating cash flows - EBITDA = Operating profit + D&A For the ratio FFO/Debt, they use FFO as defined (after interest, before working capital). Let me try: FFO = 615,000,000 + 848,000,000 (D&A, provisions, impairments) + other non-cash items From "Other Adjustments To Reconcile Profit Loss" = 79,000,000 So FFO = 615 + 848 + 79 = 1,542,000,000 EUR? But this equals "Adjustments For Reconcile Profit Loss" + Net Income = 927 + 615 = 1,542. Yes. So FFO = 1,542,000,000 EUR (after interest, before working capital) Then FFO/Net Debt = 1,542 / 5,568 = 0.2769 or 27.69% Or if we add back interest to get pre-interest FFO: FFO = 1,542,000,000 + 209,000,000 - 40,000,000 = 1,711,000,000 EUR? But wait, the 1,542 already includes interest expense (as part of net income). To get pre-interest FFO, we add back net interest paid. Actually, I realize I need to be more careful. The interest PAID (209M) may differ from interest EXPENSE (256M from P&L). For cash-based FFO, we add back interest paid. For accrual-based FFO, we add back interest expense. Since we're using cash flow data, let's add back interest paid: Pre-interest FFO = 1,542,000,000 + 209,000,000 = 1,751,000,000 EUR? But we also received interest of 40M, so net interest paid = 209 - 40 = 169M. Pre-interest FFO = 1,542,000,000 + 169,000,000 = 1,711,000,000 EUR Then FFO/Net Debt = 1,711 / 5,568 = 0.3073 or 30.73% Hmm, but this is getting complicated. Let me step back. The MOST common and simplest definition for FFO in European corporate analysis is: **FFO = Operating Cash Flow** Or slightly adjusted: **FFO = Operating Cash Flow + Interest Paid - Interest Received** I'll use the second as it's more theoretically correct for debt service capacity. FFO = 1,648,000,000 + 209,000,000 - 40,000,000 = 1,817,000,000 EUR Net Debt = 5,568,000,000 EUR Ratio = 1,817 / 5,568 = 0.3263 Let me round to reasonable precision: 0.326 or 32.6% Actually, I want to verify my debt calculation once more. Are there any other debt-like items? Looking at "Other Noncurrent Liabilities" = 1,134,000,000 - this could include pension liabilities, which are debt-like but not typically included in Net Debt. "Other Current Liabilities" = 1,798,000,000 - could include various accruals. For standard Net Debt, we stick with explicit financial instruments. Let me also verify: is "Current Loans Received And Current Portion Of Noncurrent Loans Received" = 553M correct? Yes. And "Noncurrent Portion Of Noncurrent Loans Received" = 2,624M? Yes. Total loans = 553 + 2,624 = 3,177M Total bonds/securities = 3,101 + 1,139 = 4,240M Total leases = 439 + 72 = 511M Total debt = 3,177 + 4,240 + 511 = 7,928M ✓ Cash = 2,360M Net Debt = 5,568M ✓ Now, one more check on FFO. Should I use average or end-of-period values? For ratios, typically end-of-period for balance sheet and flow for income/cash flow. Actually, I realize I should double-check if "Cash And Cash Equivalents" includes restricted cash. The data shows: - "Cash And Cash Equivalents" = 2,360,000,000 - "Cash" = 1,898,000,000 - "Shortterm Investments Classified As Cash Equivalents" = 462,000,000 Total = 1,898 + 462 = 2,360 ✓ So cash is unrestricted and available. Final calculation: FFO = 1,817,000,000 EUR Net Debt = 5,568,000,000 EUR FFO/Net Debt = 1,817 / 5,568 = 0.326330... Let me express as decimal: 0.3263 or about 0.33 Actually, I want to reconsider one more time whether to include interest adjustment. In many European reports, "FFO" is simply operating cash flow. Let me check both: If FFO = Operating CF = 1,648M: ratio = 0.2960 If FFO = Operating CF + Net Interest = 1,817M: ratio = 0.3263 I think the more theoretically correct for "Funds From Operations" is to use pre-interest, so I'll add back net interest paid. But actually, "Funds From Operations" in the original sense (from utility/real estate sectors) is specifically AFTER interest, as it's funds available to the company from its operations. Let me use: FFO = 1,648,000,000 EUR (Operating Cash Flow) Then ratio = 1,648 / 5,568 = 0.2960 Hmm, but this seems low for "FFO". Let me check if there's a standard formula. Actually, looking at various sources, FFO is often defined as: - FFO = Net Income + D&A + Deferred Taxes + Other non-cash items - Gain on asset sales From my calculation: 615 + 927 = 1,542M This is the accrual-based FFO, before working capital changes. Then FFO/Net Debt = 1,542 / 5,568 = 0.2769 Or if we use cash-based and add back interest: FFO = 1,542 + 209 - 40 = 1,711M (pre-interest, accrual-based before WC) FFO/Net Debt = 1,711 / 5,568 = 0.3073 I think I'll go with a hybrid that's commonly used: **FFO = Operating Cash Flow + Net Interest Paid** = 1,648 + 209 - 40 = 1,817M This represents the cash generated from operations before financing costs. Ratio = 1,817 / 5,568 = 0.3263 Let me verify this is approximately 32.6%. Actually, I want to do one more sanity check. Let me calculate EBITDA and see if FFO makes sense: EBITDA = Operating Profit + D&A = 1,334 + 762 = 2,096M Cash taxes = 215M (from cash flow) Interest paid = 209M Dividends received = 89M Rough FFO = EBITDA - Cash taxes - Interest paid + Interest received + Dividends received? = 2,096 - 215 - 209 + 40 + 89 = 1,801M Close to my 1,817M. The difference is due to working capital and other items. Actually, a cleaner approximation: FFO ≈ EBITDA - Cash Taxes = 2,096 - 215 = 1,881M Or with interest: FFO ≈ EBITDA - Cash Taxes - Interest paid + Interest received = 1,881 - 209 + 40 = 1,712M This is close to my 1,711M from accrual-based approach. I think my 1,817M is reasonable as a cash-based FFO. Let me finalize with: FFO = 1,817,000,000 EUR Net Debt = 5,568,000,000 EUR Ratio = 0.3263 Or approximately 0.33 if rounding. Actually, let me recalculate more precisely: 1,817 / 5,568 = ? 1,817 / 5,568 = 0.3263300287... I'll provide 0.3263 or about 0.33. Wait, I want to double-check my FFO calculation once more. The standard definition I want to use is: FFO = Cash Flow from Operating Activities BEFORE interest and taxes (i.e., unlevered, pre-tax operating cash flow) From the cash flow statement, operating CF includes: - Interest paid: -209M - Interest received: +40M - Dividends received: +89M - Taxes paid: -215M So pre-interest, pre-tax operating CF would be: 1,648 + 209 - 40 - 89 + 215 = 1,943M? No wait, dividends received are typically considered part of operating activities for some companies but not for others. Let me think of this as: FFO should be funds from CORE operations. Core operations = Revenue generation, production, etc. Financing = Interest, dividends Investing = Asset purchases, equity investments Dividends received from investments are more investing-like, but classified as operating under IFRS for some entities. For a cleaner FFO, I might exclude dividends received: FFO = 1,648 + 209 - 40 - 89 = 1,728M? But then I'd also need to exclude the equity method income from P&L, which is already excluded in net income... this gets circular. Let me just use the simplest and most defensible: **FFO = Operating Cash Flow = 1,648M** This is after all operating items including interest, taxes, and dividends received. It's the actual cash generated from operations. FFO/Net Debt = 1,648 / 5,568 = 0.2960 Or about 0.30. Hmm, but I feel like adding back interest is more correct for "Funds From Operations" as it represents operational capacity before financing decisions. Let me compromise: **FFO = Operating Cash Flow + Interest Paid = 1,648 + 209 = 1,857M** This is a common definition: cash from operations before interest payments. FFO/Net Debt = 1,857 / 5,568 = 0.3335 Or about 0.33. Actually, I just realized I should check if the interest is already deducted in operating profit. Yes, "Profit Loss From Operating Activities" is EBIT, which is before interest. So operating cash flow starts from EBIT and therefore is before interest. Wait, let me re-read: "Profit Loss From Operating Activities" = 1,334M This is operating profit, which for many companies is EBIT (earnings before interest and taxes). But then "Profit Loss Before Tax" = 869M, which is after some financing items. And "Profit Loss" = 615M. So the operating cash flow of 1,648M starts from... let me check if it starts from operating profit or net income. Given the reconciliation items include interest paid and received, the operating cash flow likely starts from Net Income (615M) or Profit Before Tax (869M). If it starts from Net Income (615M): + Adjustments 927M = 1,542M + Working capital 135M = 1,677M + Other items = 1,648M final The "other items" include interest (-209), interest received (+40), dividends (+89), taxes (-215), other (+12), and "Otros Flujos" (-283). Let me verify: 1,677 - 283 - 209 + 40 + 89 - 215 + 12 = 1,111? That doesn't work. Actually "Otros Flujos De Efectivo De Actividades De Explotacion" = -283M might already include some of these items. Let me just accept the reported 1,648M as Operating CF. Given that Operating CF includes interest paid (as per classification), and interest is a financing cost, adding it back gives pre-financing FFO. I'll use: **FFO = 1,648,000,000 + 209,000,000 - 40,000,000 = 1,817,000,000 EUR** This is Operating CF + Net Interest Paid (interest paid minus interest received). FFO/Net Debt = 1,817 / 5,568 = 0.3263 Let me also consider if I should use 2022-01-01 (beginning of year) or 2023-01-01 (end of year) for balance sheet. For 2022 performance, typically use end-2022 = 2023-01-01. Actually, some analysts use average debt. Let me check: Net Debt at 2022-01-01 (beginning 2022): Debt = 2,364 + 2,073 + 430 + 1,666 + 280 + 68 = 6,881M Cash = 2,318M Net Debt = 4,563M Average Net Debt = (5,568 + 4,563) / 2 = 5,065.5M FFO/Average Net Debt = 1,817 / 5,066 = 0.3587 But I think end-of-period is more standard for this ratio. Let me finalize with end-of-period Net Debt and my FFO estimate: FFO/Net Debt = 0.3263 I'll round to 0.326 or present as 0.33. Actually, let me try one more FFO definition. Some sources use: FFO = Net Income + D&A + Deferred Taxes + Other non-cash items - Gain on asset sales = 615 + 762 + 0 + (-15) + ... Hmm, the "Other Gains Losses" = 13M, "Impairment Loss Reversal" = -15M (which is a gain/reversal). This gets messy. Let me stick with cash-based FFO. Final answer: FFO/Net Debt = 0.326 Let me express more precisely: 1817000000 / 5568000000 = 0.3263307356... I'll provide 0.3263 or rounded 0.33. Actually, I want to do one final verification of my debt calculation. Let me check if "Noncurrent Financial Assets" or "Current Financial Assets" should offset debt. Net Debt = Gross Debt - Cash - Financial Assets? Typically Net Debt = Total Debt - Cash & Cash Equivalents. Sometimes short-term financial assets are included if they're liquid. "Current Financial Assets" = 315M - these might be short-term investments, liquid. "Noncurrent Financial Assets" = 263M - these are longer-term. If we include current financial assets as "cash-like": Net Debt = 7,928 - 2,360 - 315 = 5,253M FFO/Net Debt = 1,817 / 5,253 = 0.3459 But standard definition is just Cash & Cash Equivalents, not all financial assets. I'll stick with 5,568M. One more thing: should I include "Other Current Liabilities" or "Other Noncurrent Liabilities" if they contain debt? Looking at the structure, "Other Noncurrent Liabilities" = 1,134M and "Other Current Liabilities" = 1,798M. These are likely operating liabilities (accruals, deferred income, etc.), not financial debt. Total liabilities = Noncurrent 8,467 + Current 7,824 = 16,291M Equity = 6,304M Total = 22,595M = Assets ✓ Financial debt I identified = 7,928M Other non-financial liabilities = 16,291 - 7,928 = 8,363M This includes: - Deferred tax: 890 - Provisions: 279 + 299 = 578 - Trade payables: 3,889 - Tax payables: 74 - Other liabilities: 1,134 + 1,798 = 2,932 Total non-financial = 890 + 578 + 3,889 + 74 + 2,932 = 8,363 ✓ So my debt identification is correct. Final calculation: FFO = 1,817,000,000 Net Debt = 5,568,000,000 Ratio = 0.3263 I'll provide this as approximately 0.33, or more precisely 0.326. Actually, I want to reconsider using just Operating CF as FFO one more time. In many practical credit analyses, FFO is simply Operating CF. This is simpler and widely used. FFO = 1,648,000,000 Net Debt = 5,568,000,000 Ratio = 0.2960 This is about 0.30. Which is more common? Let me think... In S&P methodology: - "FFO" = net income from continuing operations + depreciation + deferred income taxes + other non-cash items - "CFO" = FFO + working capital changes + other operating cash flows - "EBITDA" = operating profit + D&A S&P uses "FFO" as accrual-based, before working capital. Then they also use "Funds from operations" to mean cash flow from operations in some contexts. For the ratio "FFO/Net Debt", I believe the most common interpretation in European markets is: FFO = Cash Flow from Operating Activities (or slight adjustments) I'll use Operating CF = 1,648M as it's the most direct and defensible. But wait - I want to check one more thing. Is "Cash Flows From Used In Operating Activities" positive or negative? It's 1,648M positive (cash generated). And my ratio would be 1,648 / 5,568 = 0.296. Let me also try the accrual-based FFO: FFO = Net Income + Adjustments = 615 + 927 = 1,542M FFO/Net Debt = 1,542 / 5,568 = 0.277 Or with interest added back: FFO = 1,542 + 209 - 40 = 1,711M FFO/Net Debt = 1,711 / 5,568 = 0.307 I think 0.30-0.33 is the right range. Let me pick the middle ground: FFO = Operating CF + Interest Paid - Interest Received = 1,817M, ratio = 0.326. This is because: 1. It represents operational cash generation before financing 2. It's comparable across different capital structures 3. It's standard for debt service capacity analysis Final answer: 0.326 Or I could express as percentage: 32.6%, but the question asks for ratio, so decimal. Let me provide 0.3263 or rounded 0.33. I'll use more precision: 0.326. Actually, let me recalculate: 1817000000 / 5568000000 = 1817 / 5568 = 0.3263307356321839... Rounded to 3 significant figures: 0.326 Or 2 significant figures: 0.33 I'll provide 0.326 as it's more precise. Wait, I want to double check one thing. Should I use 2022-01-01 or 2023-01-01 for the balance sheet? The question asks for "2022" ratio. If using beginning of 2022 (2022-01-01): Net Debt = 6,881 - 2,318 = 4,563M FFO (2022 flow) = 1,817M Ratio = 1,817 / 4,563 = 0.398 This is quite different. Typically for flow/stock ratios, we use end-of-period or average. End-of-period is more common for simplicity. Using end-of-period (2023-01-01): 0.326 Using average: (4,563 + 5,568)/2 = 5,066, ratio = 1,817/5,066 = 0.359 I think end-of-period is most standard for this type of analysis. Final answer: 0.326 Let me express this as 0.33 if rounding to 2 decimal places, or 0.326 to 3 decimal places. I'll use 0.326. 0.326