I need to estimate the Net Debt / EBITDA ratio for 2022 based on S&P methodology. ## Step 1: Identify the Period The data uses 2022-01-01 and 2023-01-01 as balance sheet dates. The income statement items with "2022-01-01 - 2023-01-01" represent the year 2022 results, and "2021-01-01 - 2022-01-01" represent 2021 results. ## Step 2: Calculate EBITDA for 2022 S&P methodology for EBITDA typically starts with Operating Profit and adds back depreciation and amortization. From the data for 2022 (2022-01-01 to 2023-01-01): - "Profit Loss From Operating Activities": 961,554,000 EUR - "Depreciation And Amortisation Expense": 544,992,000 EUR EBITDA = Operating Profit + Depreciation and Amortization EBITDA = 961,554,000 + 544,992,000 = 1,506,546,000 EUR ## Step 3: Calculate Net Debt at Year-End 2022 Net Debt = Total Debt - Cash and Cash Equivalents First, I need to identify debt items. S&P methodology typically includes: - Current borrowings and current portion of non-current borrowings - Long-term borrowings - Other financial liabilities (if they represent debt-like obligations) From the balance sheet at 2023-01-01 (which is year-end 2022): - "Current Borrowings And Current Portion Of Noncurrent Borrowings": 721,845,000 EUR - "Longterm Borrowings": 5,491,124,000 EUR - "Other Current Financial Liabilities": 983,432,000 EUR - "Other Noncurrent Financial Liabilities": 52,631,000 EUR For S&P methodology, I need to check what constitutes "debt": - Long-term borrowings: 5,491,124,000 EUR - Current borrowings and current portion of non-current borrowings: 721,845,000 EUR Other financial liabilities may or may not be debt-like. Let me check if there are derivatives or other items. Looking at "Noncurrent Financial Liabilities" total: 5,543,755,000 EUR This includes: Long-term borrowings (5,491,124,000) + Other Noncurrent Financial Liabilities (52,631,000) And "Current Financial Liabilities" total: 1,705,277,000 EUR This includes: Current Borrowings And Current Portion Of Noncurrent Borrowings (721,845,000) + Other Current Financial Liabilities (983,432,000) For S&P Net Debt, typically: - Gross Debt = Long-term borrowings + Current borrowings + Other financial liabilities that are debt-like Let me use a comprehensive approach for debt: - Long-term borrowings: 5,491,124,000 - Current borrowings and current portion: 721,845,000 - Other current financial liabilities: 983,432,000 (these are typically debt-like, e.g., factoring, finance leases) - Other noncurrent financial liabilities: 52,631,000 Total Gross Debt = 5,491,124,000 + 721,845,000 + 983,432,000 + 52,631,000 = 7,249,032,000 EUR Wait - let me reconsider. The "Other Current Financial Liabilities" of 983,432,000 might include trade payables or other operating liabilities. Let me look more carefully. Actually, looking at the structure: - "Trade And Other Current Payables" is separate: 1,160,176,000 EUR - "Current Financial Liabilities" is separate from trade payables So "Current Financial Liabilities" (1,705,277,000) and "Noncurrent Financial Liabilities" (5,543,755,000) are the debt/financial obligations. For S&P methodology, typically all interest-bearing liabilities are included. Let me use: - Total Financial Liabilities = Current Financial Liabilities + Noncurrent Financial Liabilities = 1,705,277,000 + 5,543,755,000 = 7,249,032,000 EUR But we should exclude derivatives that are not debt-like. Let me check: - "Current Derivative Financial Liabilities": 7,053,000 - "Noncurrent Derivative Financial Liabilities": 22,016,000 These are typically not included in debt for net debt purposes (they're hedging instruments). Also, looking at "Noncurrent Financial Assets" and "Current Financial Assets" - these might include loans receivable that could reduce net debt. For standard S&P Net Debt: Gross Debt = Long-term borrowings + Short-term borrowings + Current portion of long-term debt From the data: - Longterm Borrowings: 5,491,124,000 - Current Borrowings And Current Portion Of Noncurrent Borrowings: 721,845,000 For "Other Current Financial Liabilities" (983,432,000) and "Other Noncurrent Financial Liabilities" (52,631,000) - these could include various items. Without more detail, let me check if they're debt-like. Actually, looking at typical Spanish annual reports, "Other Financial Liabilities" often includes items like: - Derivatives (already separated here) - Finance lease obligations - Factoring obligations - Other debt-like items For conservative S&P approach, let me include all financial liabilities except derivatives: - Noncurrent Financial Liabilities excluding derivatives: 5,543,755,000 - 22,016,000 = 5,521,739,000? No wait, derivatives are already separate line items. Actually, looking at the structure: "Noncurrent Financial Liabilities" = 5,543,755,000 This is composed of: - Longterm Borrowings: 5,491,124,000 - Other Noncurrent Financial Liabilities: 52,631,000 "Current Financial Liabilities" = 1,705,277,000 This is composed of: - Current Borrowings And Current Portion Of Noncurrent Borrowings: 721,845,000 - Other Current Financial Liabilities: 983,432,000 For S&P Net Debt, I'll use the standard definition: Gross Debt = Long-term borrowings + Current borrowings + Current portion of long-term debt + Other debt-like financial liabilities Let me include: - Longterm Borrowings: 5,491,124,000 - Current Borrowings And Current Portion Of Noncurrent Borrowings: 721,845,000 - Other Noncurrent Financial Liabilities: 52,631,000 (likely debt-like) - Other Current Financial Liabilities: 983,432,000 (need to assess) Actually, for S&P, "Other Current Financial Liabilities" might include trade finance, factoring, etc. which are debt-like. Let me include it. Gross Debt = 5,491,124,000 + 721,845,000 + 52,631,000 + 983,432,000 = 7,249,032,000 EUR Cash and Cash Equivalents at 2023-01-01: 794,824,000 EUR Net Debt = 7,249,032,000 - 794,824,000 = 6,454,208,000 EUR But wait - I should also check if there are other cash-like items. "Current Financial Assets At Amortised Cost" is 752,505,000 EUR. This could include deposits, short-term investments, etc. that are cash-like but not "Cash and Cash Equivalents." For strict S&P methodology, sometimes these are included if they're liquid and readily convertible to cash. However, "Cash and Cash Equivalents" is the standard item. Let me also check if we should include "Other Current Financial Assets" - these are at amortized cost, so likely loans receivable or deposits. Not typically included in net debt calculation as they're not readily available cash equivalents. Actually, re-reading S&P methodology more carefully: Net Debt typically includes cash and cash equivalents, and sometimes marketable securities if they're liquid. "Current Financial Assets At Amortised Cost" = 752,505,000 EUR - this seems like a large amount. Let me check if this is actually cash-like or if it's loans to associates, etc. Given the context and that "Cash And Cash Equivalents" is separately reported as 794,824,000, and "Current Financial Assets At Amortised Cost" is 752,505,000, these are likely separate items. The amortized cost items are likely deposits or loans, not pure cash equivalents. For standard Net Debt: Net Debt = Gross Debt - Cash and Cash Equivalents Net Debt = 7,249,032,000 - 794,824,000 = 6,454,208,000 EUR But I want to double-check my gross debt. Let me reconsider "Other Current Financial Liabilities" = 983,432,000. Looking at the payables structure: - Trade And Other Current Payables: 1,160,176,000 (operating) - Current Financial Liabilities: 1,705,277,000 (financing) So Current Financial Liabilities is separate from trade payables and is financing-related. Actually, let me recalculate more carefully. S&P Global Ratings methodology for Net Debt: "Debt" includes: - Short-term borrowings - Current portion of long-term debt - Long-term debt - Capital lease obligations - Preferred stock (if treated as debt) - Hybrid instruments (if treated as debt) Excludes: - Trade payables - Derivatives (unless embedded in debt) - Pension liabilities - Deferred taxes From my data: - Longterm Borrowings: 5,491,124,000 - Current Borrowings And Current Portion Of Noncurrent Borrowings: 721,845,000 - Other Noncurrent Financial Liabilities: 52,631,000 - Other Current Financial Liabilities: 983,432,000 The "Other" categories might include finance leases, factoring without recourse, etc. For S&P, if these are debt-like, they should be included. Let me use a more conservative approach and include all financial liabilities: Gross Debt = 5,491,124,000 + 721,845,000 + 52,631,000 + 983,432,000 = 7,249,032,000 Or, using the totals directly: Noncurrent Financial Liabilities: 5,543,755,000 Current Financial Liabilities: 1,705,277,000 Total Financial Liabilities: 7,249,032,000 But wait - I need to check if derivatives are included in these totals or separate. Looking at the structure: - "Noncurrent Derivative Financial Liabilities" = 22,016,000 (separate line item) - "Current Derivative Financial Liabilities" = 7,053,000 (separate line item) These are listed outside of "Noncurrent Financial Liabilities" and "Current Financial Liabilities" totals, so the totals are pure debt. Actually, let me verify: "Noncurrent Liabilities" total = 6,984,202,000 Components: - Noncurrent Government Grants: 746,498,000 - Other Longterm Provisions: 139,822,000 - Noncurrent Financial Liabilities: 5,543,755,000 - Deferred Tax Liabilities: 417,650,000 - Noncurrent Derivative Financial Liabilities: 22,016,000 - Other Noncurrent Liabilities: 114,461,000 Sum: 746,498 + 139,822 + 5,543,755 + 417,650 + 22,016 + 114,461 = 6,984,202 ✓ So "Noncurrent Financial Liabilities" (5,543,755) excludes derivatives. Similarly for Current Liabilities: - Current Provisions: 30,536 - Current Financial Liabilities: 1,705,277 - Trade And Other Current Payables: 1,160,176 - Current Tax Liabilities: 13,320 - Current Derivative Financial Liabilities: 7,053 Sum: 30,536 + 1,705,277 + 1,160,176 + 13,320 + 7,053 = 2,916,362? But total is 2,903,042. Wait, let me recheck: 30,536,000 + 1,705,277,000 + 1,160,176,000 + 13,320,000 + 7,053,000 = 2,916,362,000 But "Current Liabilities" total is 2,903,042,000. There's a discrepancy of 13,320,000. Let me check... Actually: 30,536 + 1,705,277 + 1,160,176 + 13,320 + 7,053 = 2,916,362. But stated total is 2,903,042. Hmm, 2,916,362 - 2,903,042 = 13,320. So Current Tax Liabilities might already be included in something else, or there's an error. Actually, looking again: maybe "Current Tax Liabilities" is part of "Other Current Payables"? Regardless, for Net Debt calculation, I need: - Debt items: borrowings and financial liabilities - Cash: cash and cash equivalents Let me use the most standard S&P approach: **Gross Debt** = Long-term borrowings + Current borrowings and current portion of long-term borrowings + Other financial liabilities that are debt-like For simplicity and standardization, let me use: - Longterm Borrowings: 5,491,124,000 - Current Borrowings And Current Portion Of Noncurrent Borrowings: 721,845,000 This is the "core debt" that is clearly interest-bearing. The "Other" financial liabilities may or may not be debt-like. But for comprehensive S&P Net Debt, we should include all interest-bearing liabilities. Let me include: - Noncurrent Financial Liabilities: 5,543,755,000 (includes long-term borrowings + other) - Current Financial Liabilities: 1,705,277,000 (includes current borrowings + other) Total: 7,249,032,000 Cash and Cash Equivalents: 794,824,000 Net Debt = 7,249,032,000 - 794,824,000 = 6,454,208,000 But I want to also consider if "Other Current Financial Assets" or "Current Financial Assets At Amortised Cost" should reduce net debt. These are assets, not cash. S&P typically only subtracts "Cash and Cash Equivalents" and sometimes "Liquid Investments." "Current Financial Assets At Amortised Cost" = 752,505,000 - this is significant. If these are short-term deposits or highly liquid investments, they might be considered cash-like. However, given they're classified as "Financial Assets" and not "Cash and Cash Equivalents," they're likely not immediately liquid. For conservative S&P Net Debt, I'll stick with just Cash and Cash Equivalents. Actually, let me reconsider. In many European annual reports, "Current Financial Assets At Amortised Cost" includes items like: - Short-term loans to group companies - Deposits with maturity > 3 months but < 1 year - Other receivables that are financial in nature These are not typically included in "Cash and Cash Equivalents" because they're not immediately available, but they might still be fairly liquid. For strict S&P methodology, I'll use only Cash and Cash Equivalents. ## Recalculation with Potential Adjustments Let me also check if I should include "Noncurrent Financial Assets At Amortised Cost" or other items. These are long-term, so definitely not cash-like. What about "Other Current Financial Assets"? The total is 752,505,000, all classified as "Current Financial Assets At Amortised Cost." There are no fair value through profit/loss or OCI current financial assets. For S&P Net Debt, I'll use: Gross Debt = 7,249,032,000 Cash = 794,824,000 Net Debt = 6,454,208,000 But actually, I realize I should double-check the EBITDA calculation. S&P typically uses "Adjusted EBITDA" which might include or exclude certain items. From the P&L for 2022: - Revenue: 2,015,036,000 - Other Work Performed By Entity And Capitalised: 62,903,000 - Participacion En Beneficios... (equity method income): 50,405,000 - Aprovisionamientos (purchases): -37,061,000 - Miscellaneous Other Operating Income: 77,673,000 - Employee Benefits Expense: -210,614,000 - Miscellaneous Other Operating Expense: -467,088,000 - Depreciation And Amortisation Expense: -544,992,000 - Imputacion De Subvenciones... (grant income): 15,780,000 - Deterioro YResultado... (impairment and gains/losses on disposals): -488,000 Operating Profit = 961,554,000 (given) Let me verify: This seems to already be the net operating profit after all these items. For EBITDA, S&P typically uses: EBITDA = Operating Profit + Depreciation and Amortization + Other non-cash charges So: 961,554,000 + 544,992,000 = 1,506,546,000 Some S&P adjustments might add back impairment, but impairment here is only 488,000, negligible. Also, equity method income (50,405,000) is typically included in EBITDA for S&P when it's recurring. The operating profit given (961,554,000) already includes this. Wait, let me verify: Is the equity method income included in "Profit Loss From Operating Activities"? Looking at the P&L structure, "Participacion En Beneficios De Sociedades Valoradas Por El Metodo De La Participacion" is listed before operating profit, so yes, it's included in operating profit. So EBITDA = 1,506,546,000 is correct. ## Final Calculation Net Debt / EBITDA = 6,454,208,000 / 1,506,546,000 = 4.284 Let me recalculate more precisely: 6,454,208,000 / 1,506,546,000 = 4.284... Actually, let me reconsider if I should use a different gross debt figure. Alternative approach: Some practitioners use only "Long-term borrowings" + "Current borrowings" for debt, excluding "Other financial liabilities" unless they're clearly debt-like. Core Debt = 5,491,124,000 + 721,845,000 = 6,212,969,000 Net Debt = 6,212,969,000 - 794,824,000 = 5,418,145,000 Net Debt / EBITDA = 5,418,145,000 / 1,506,546,000 = 3.596 But this seems too low and not comprehensive. The "Other Current Financial Liabilities" of 983,432,000 is quite large and likely includes significant debt-like items (e.g., factoring, commercial paper, short-term finance). Let me think about what "Other Current Financial Liabilities" might include. In Spanish companies, this often includes: - Factoring without recourse (debt-like) - Finance leases - Other short-term financing For S&P methodology, these should be included in debt. Similarly, "Other Noncurrent Financial Liabilities" (52,631,000) is small and likely includes finance leases or other debt-like items. So my original calculation seems more appropriate: Gross Debt = 7,249,032,000 Net Debt = 6,454,208,000 Net Debt / EBITDA = 4.28 But wait - I want to also check if there's any cash in "Other Current Financial Assets" that should be included. The "Current Financial Assets At Amortised Cost" = 752,505,000. Actually, looking more carefully at S&P methodology, they sometimes include "Cash and Cash Equivalents" plus "Readily Marketable Securities" or "Liquid Investments." The 752,505,000 in current financial assets at amortized cost could potentially be liquid. However, without knowing the exact nature, I'll be conservative and use only "Cash and Cash Equivalents" as reported. Let me also verify my EBITDA one more time. S&P sometimes adjusts EBITDA for non-recurring items, equity income, etc. Actually, for regulated utilities (which Red Eléctrica is, as a transmission system operator), S&P often uses a slightly different approach. But standard methodology applies. One more check: Should I include the equity income in EBITDA? S&P Global Ratings typically includes recurring equity income in EBITDA for associate/joint venture investments if they're part of normal operations. The operating profit already includes this. Also, I should verify if "Other Work Performed By Entity And Capitalised" affects EBITDA. This is capitalized costs, so it's not in the P&L as an expense, and thus not deducted from revenue to get operating profit. It's already treated correctly. Let me do a final precise calculation: EBITDA = 961,554,000 + 544,992,000 = 1,506,546,000 Net Debt: - Total Financial Liabilities (excluding derivatives, which are separate): - Noncurrent Financial Liabilities: 5,543,755,000 - Current Financial Liabilities: 1,705,277,000 - Total: 7,249,032,000 - Less: Cash and Cash Equivalents: 794,824,000 - Net Debt: 6,454,208,000 Ratio: 6,454,208,000 / 1,506,546,000 = 4.2842... Rounding to two decimal places: 4.28 Actually, let me also consider an alternative: should I use average debt or year-end debt? S&P typically uses year-end debt for Net Debt/EBITDA, or sometimes average of beginning and end. For this question, since we're asked for "2022" ratio, year-end is standard. But wait - the balance sheet date "2023-01-01" is actually the end of 2022 (Spanish companies often use this format where the date represents the closing of the period). So this is correct as year-end 2022. Let me also verify by checking if 2022-01-01 (beginning of 2022 / end of 2021) numbers give a different perspective: - Cash at 2022-01-01: 1,574,427,000 - Current Financial Liabilities at 2022-01-01: 2,144,425,000 - Noncurrent Financial Liabilities at 2022-01-01: 5,953,434,000 - Total Financial Liabilities: 8,097,859,000 - Net Debt at 2022-01-01: 8,097,859,000 - 1,574,427,000 = 6,523,432,000 Average Net Debt = (6,454,208,000 + 6,523,432,000) / 2 = 6,488,820,000 Average Net Debt / EBITDA = 6,488,820,000 / 1,506,546,000 = 4.307 But S&P typically uses point-in-time (year-end) for Net Debt, not average. So I'll stick with 4.28. However, I want to double-check one thing. The "Current Financial Assets At Amortised Cost" at 2023-01-01 is 752,505,000, and at 2022-01-01 was only 25,401,000. This huge increase suggests these might be temporary cash placements or deposits that became significant. If these are truly liquid and cash-like, they might be considered in a broader "Net Debt" calculation. For the most comprehensive "Net Debt" some practitioners use: Net Debt = Gross Debt - Cash - Cash Equivalents - Short-term Liquid Investments If we include "Current Financial Assets At Amortised Cost" as liquid: Net Debt = 7,249,032,000 - 794,824,000 - 752,505,000 = 5,701,703,000 Net Debt / EBITDA = 5,701,703,000 / 1,506,546,000 = 3.785 But this is less standard. S&P Global Ratings specifically uses "Cash and Cash Equivalents" per the accounting definition, not all financial assets. Given the standard S&P methodology, I'll use: Net Debt = 6,454,208,000 EBITDA = 1,506,546,000 Ratio = 4.28 Let me do one more verification of the calculation: 6,454,208,000 / 1,506,546,000 = 6,454,208 / 1,506,546 = 4.2842... Yes, 4.28 when rounded to two decimal places. Actually, I want to check if I should present more precision. The answer format asks for VALUE with no units. I'll provide 4.28. But let me reconsider one more time if there are any adjustments to EBITDA that S&P would make. Looking at the operating profit: "Profit Loss From Operating Activities" = 961,554,000 This includes: - Grant income (Imputacion De Subvenciones): 15,780,000 - Equity method income: 50,405,000 S&P sometimes adjusts for non-recurring grants, but capital grants that are amortized are typically considered part of normal operations for regulated utilities. Also, S&P sometimes excludes equity method income from EBITDA and adds it back separately, or includes it if it's recurring. For infrastructure companies with stable associates, it's often included. Given this is a regulated utility with stable operations, I'll keep the standard calculation. Final answer: 4.28 Wait, I want to double-check my arithmetic one more time: Gross Debt: - Noncurrent Financial Liabilities: 5,543,755,000 - Current Financial Liabilities: 1,705,277,000 - Total: 7,249,032,000 Cash: 794,824,000 Net Debt: 7,249,032,000 - 794,824,000 = 6,454,208,000 EBITDA: 961,554,000 + 544,992,000 = 1,506,546,000 Ratio: 6,454,208,000 / 1,506,546,000 Let me do long division: 6,454,208 / 1,506,546 1,506,546 × 4 = 6,026,184 6,454,208 - 6,026,184 = 428,024 So 4 + 428,024/1,506,546 = 4 + 0.2842... = 4.2842... Yes, 4.28. 4.28