To estimate the Net Debt / EBITDA ratio for 2022 based on the S&P methodology, we need to calculate two components: Net Debt and EBITDA. **1. Calculate Net Debt** S&P's definition of Net Debt typically includes: * Total Debt (Short-term and Long-term borrowings, including current portions of long-term debt). * Plus: Capitalized leases (if not already in debt). * Plus: Preferred stock (sometimes treated as debt-like, but often excluded in standard corporate net debt unless specified; we will stick to financial liabilities). * Less: Cash and Cash Equivalents. * Less: Short-term investments (often included if highly liquid, but S&P usually focuses on unrestricted cash. We will use Cash and Cash Equivalents as the primary offset). From the data provided for the period ending 2023-01-01 (which represents the fiscal year 2022 balance sheet): * **Long-term Borrowings:** 5,491,124,000 EUR * **Current Borrowings And Current Portion Of Noncurrent Borrowings:** 721,845,000 EUR * **Other Noncurrent Financial Liabilities:** 52,631,000 EUR (Note: S&P often includes interest-bearing financial liabilities. "Other Noncurrent Financial Liabilities" and "Other Current Financial Liabilities" need scrutiny. Usually, "Borrowings" captures the core debt. However, S&P adjusts for all interest-bearing debt. Let's look at "Noncurrent Financial Liabilities" (5,543,755,000) and "Current Financial Liabilities" (1,705,277,000). * Noncurrent Financial Liabilities = Longterm Borrowings (5,491,124,000) + Other Noncurrent Financial Liabilities (52,631,000). * Current Financial Liabilities = Current Borrowings (721,845,000) + Other Current Financial Liabilities (983,432,000). * S&P methodology typically includes all interest-bearing debt. "Other Current Financial Liabilities" might include derivatives or other items. However, without a breakdown, standard Net Debt calculations often use Total Borrowings. Let's look at the specific line items for "Borrowings". * Total Borrowings = Longterm Borrowings + Current Borrowings And Current Portion Of Noncurrent Borrowings. * Total Borrowings = 5,491,124,000 + 721,845,000 = 6,212,969,000 EUR. * *Self-Correction/Refinement:* S&P often includes "Other Financial Liabilities" if they are debt-like. However, "Other Current Financial Liabilities" (983M) is significant. Let's check if these are trade payables or debt. The line "Trade And Other Current Payables" is separate (1,160,176,000). "Other Current Financial Liabilities" likely contains derivatives or short-term financial instruments. Given the ambiguity, the most robust "Debt" figure is usually Total Borrowings. However, S&P's "Debt" definition is broad. Let's look at "Noncurrent Financial Liabilities" and "Current Financial Liabilities" minus non-debt items. * Let's stick to the explicit "Borrowings" lines for the core debt, as "Other Financial Liabilities" often includes derivatives (which are marked to market) and may not be principal debt. * Total Debt = 6,212,969,000 EUR. * **Cash and Cash Equivalents:** 794,824,000 EUR. * **Short-term Investments:** The line "Current Financial Assets At Amortised Cost" is 752,505,000 EUR. S&P often deducts unrestricted cash and short-term investments. Let's assume these are liquid enough to be deducted, or strictly stick to Cash. S&P usually deducts "Cash and short-term investments". Let's include "Current Financial Assets At Amortised Cost" as they are likely liquid deposits/investments. * Total Cash & Equivalents + Short Term Investments = 794,824,000 + 752,505,000 = 1,547,329,000 EUR. * *Alternative Conservative View:* Only deduct Cash. * Let's check the magnitude. If we deduct only cash: Net Debt = 6,212,969,000 - 794,824,000 = 5,418,145,000. * If we deduct cash + short term financial assets: Net Debt = 6,212,969,000 - 1,547,329,000 = 4,665,640,000. * Standard S&P methodology deducts "cash and short-term investments". The item "Current Financial Assets At Amortised Cost" is highly likely to be short-term deposits or similar. We will deduct it. * **Net Debt** = Total Borrowings - (Cash + Short-term Financial Assets) * Net Debt = 6,212,969,000 - 1,547,329,000 = **4,665,640,000 EUR**. *(Note: If "Other Current Financial Liabilities" of 983M is also interest-bearing debt, Total Debt would be higher. However, without explicit confirmation, "Borrowings" is the safest debt proxy. If we included all Financial Liabilities: Total Fin Liab = 5,543,755,000 + 1,705,277,000 = 7,249,032,000. Net Debt would be 7,249,032,000 - 1,547,329,000 = 5,701,703,000. Let's calculate EBITDA first to see which ratio makes more sense in context, or stick to the strict definition of Debt = Borrowings. S&P defines debt as short-term and long-term borrowings, capital leases, and preferred stock. It does not automatically include all "financial liabilities" which may include derivatives. We will use Total Borrowings.)* **2. Calculate EBITDA** EBITDA = Earnings Before Interest, Taxes, Depreciation, and Amortization. We can derive this from the Profit & Loss statement for the period 2022-01-01 to 2023-01-01. * **Profit Loss From Operating Activities (EBIT):** 961,554,000 EUR. * Note: This is often synonymous with EBIT in many reports, but we must check if it includes interest. The label "Operating Activities" usually excludes finance costs. * Let's verify: * Revenue: 2,015,036,000 * Expenses: * Aprovisionamientos: 37,061,000 * Employee Benefits: 210,614,000 * Misc Other Operating Expense: 467,088,000 * Depreciation/Amortization: 544,992,000 * Other Work Capitalized: (62,903,000) -> This is income/add-back to expenses effectively. * Misc Other Operating Income: (77,673,000) -> Income. * Grants Imputed: (15,780,000) -> Income. * Impairment/Disposal: 488,000 * Equity Method Income: (50,405,000) -> This is usually below EBIT or included? "Participacion En Beneficios..." is often included in Operating Profit in some formats or below. Let's look at the provided "Profit Loss From Operating Activities": 961,554,000. * Let's check the calculation: Revenue (2015.0) + Other Work (62.9) + Misc Inc (77.7) + Grants (15.8) - Supplies (37.1) - Emp (210.6) - Misc Exp (467.1) - Depr (545.0) - Impairment (0.5) + Equity Income (50.4)? 2015 + 62.9 + 77.7 + 15.8 - 37.1 - 210.6 - 467.1 - 545.0 - 0.5 + 50.4 = 961.5. Yes, the "Profit Loss From Operating Activities" of 961,554,000 includes the Equity Method income. * S&P EBITDA usually starts with EBIT. Does EBIT include Equity Income? Standard EBIT is operating income. Equity income is often non-operating or included depending on the core business. For a utility holding company, it might be considered operating. However, standard EBITDA add-back is to Net Income or Operating Profit. * Let's use the standard formula: EBITDA = Operating Profit + Depreciation & Amortization. * Operating Profit (Profit Loss From Operating Activities) = 961,554,000 EUR. * Depreciation And Amortisation Expense = 544,992,000 EUR. * **EBITDA** = 961,554,000 + 544,992,000 = **1,506,546,000 EUR**. * *Check against Net Income approach:* * Net Profit (Attributable to Parent): 664,731,000 * + Tax: 188,330,000 * + Net Finance Costs: Finance Costs (116,468,000) - Finance Income (23,161,000) - Gains on FVPL (1,196,000) - Gains on FX (74,000)? * Finance Income/Cost Net = -92,037,000 (Cost). * So add back 92,037,000. * + Depreciation: 544,992,000 * + Non-controlling interests: 16,456,000 (to get to consolidated pre-tax/interest?) * Let's stick to the Operating Profit + D&A method as it is cleaner and provided directly. * EBITDA = 1,506,546,000 EUR. **3. Calculate Ratio** * Net Debt = 4,665,640,000 EUR * EBITDA = 1,506,546,000 EUR Ratio = 4,665,640,000 / 1,506,546,000 ≈ 3.0969 Let's double check the Debt definition. If S&P includes "Other Financial Liabilities" (derivatives etc) in debt, the numerator increases. Total Financial Liabilities = Noncurrent (5,543,755,000) + Current (1,705,277,000) = 7,249,032,000. Net Debt (Broad) = 7,249,032,000 - 1,547,329,000 = 5,701,703,000. Ratio (Broad) = 5,701,703,000 / 1,506,546,000 ≈ 3.78. However, "Other Current Financial Liabilities" (983M) and "Other Noncurrent Financial Liabilities" (52M) often contain derivative liabilities (marked to market) and other non-debt instruments. S&P's definition of debt is "borrowings". Derivatives are usually excluded from the debt numerator unless they are synthetic debt. Given the line items "Noncurrent Derivative Financial Liabilities" (22M) and "Current Derivative Financial Liabilities" (7M) are separate or part of the financial liabilities? The report lists: "Noncurrent Financial Liabilities": 5,543,755,000 - "Longterm Borrowings": 5,491,124,000 - "Other Noncurrent Financial Liabilities": 52,631,000 - "Noncurrent Derivative Financial Liabilities": 22,016,000 (Wait, is this included in the above? Usually, derivatives are separate or part of "Other". The sum of Longterm Borrowings + Other Noncurrent + Derivatives = 5491 + 52 + 22 = 5565. This is higher than 5543. It is likely that "Noncurrent Financial Liabilities" *includes* the derivatives or the "Other" category. Let's check the sum: 5,491,124,000 (Borrowings) + 52,631,000 (Other) = 5,543,755,000. This matches exactly. So "Noncurrent Derivative Financial Liabilities" (22,016,000) is likely a subset of "Other Noncurrent Financial Liabilities" or disclosed separately but included in the total. Similarly for Current: "Current Financial Liabilities": 1,705,277,000 - "Current Borrowings...": 721,845,000 - "Other Current Financial Liabilities": 983,432,000 Sum = 1,705,277,000. Matches exactly. "Current Derivative Financial Liabilities": 7,053,000. This is likely part of "Other Current Financial Liabilities". S&P excludes derivative liabilities from debt unless they are embedded. Therefore, we should exclude the derivative portion from "Other Financial Liabilities" if possible, or just stick to "Borrowings". If we assume "Other Financial Liabilities" are mostly derivatives or non-debt, sticking to "Borrowings" is the most accurate S&P-aligned approach for "Debt". So, Debt = 6,212,969,000. What about Cash? S&P deducts "unrestricted cash and short-term investments". Cash = 794,824,000. "Current Financial Assets At Amortised Cost" = 752,505,000. Are these short-term investments? Yes, typically. Are there other liquid assets? "Current Financial Assets At Fair Value..." are 0. So Total Liquid Assets = 1,547,329,000. Net Debt = 6,212,969,000 - 1,547,329,000 = 4,665,640,000. EBITDA = 1,506,546,000. Ratio = 4,665,640,000 / 1,506,546,000 = 3.0969... Let's round to two decimal places: 3.10. One check: Did S&P adjust EBITDA for "Equity Method Income"? The Operating Profit includes 50,405,000 from Equity Method. Strictly speaking, EBITDA should reflect cash-generating ability of the core operations. Equity income is non-cash (unless dividends received, which are investing cash flows). S&P often adds back equity income to EBITDA if it's included in Operating Profit, or treats it as non-operating. If we remove Equity Income from EBITDA: EBITDA (Adjusted) = 1,506,546,000 - 50,405,000 = 1,456,141,000. Ratio = 4,665,640,000 / 1,456,141,000 = 3.20. However, "Profit Loss From Operating Activities" is the standard starting point. In many utility contexts, equity investments in transmission assets are core. Red Eléctrica holds stakes in other grid operators. It is likely considered operating. I will stick to the reported Operating Profit + D&A. Another check: Lease Liabilities. S&P capitalizes operating leases. Are there lease liabilities in "Borrowings"? In IFRS 16, lease liabilities are often included in borrowings or separate. If they are in "Other Financial Liabilities", we might be underestimating debt. However, without a specific "Lease Liability" line item, we assume "Borrowings" captures the interest-bearing debt obligations including capitalized leases if reported as such. Final Calculation: Net Debt = 4,665,640,000 EBITDA = 1,506,546,000 Ratio = 3.0969 3.10