I'll work through this step-by-step for REDEIA CORPORACION SA. ## Step 1: Identify the Relevant Industry REDEIA CORPORACION SA (formerly Red Eléctrica Corporación, S.A.) is Spain's national electricity transmission system operator. This is a **regulated utility** - specifically an electricity transmission company. The entity fits into the **Regulated Utilities** industry methodology. Key characteristics: - Provides essential infrastructure service (electricity transmission) - Shielded from competition - Subject to comprehensive regulation by regulatory bodies - Electricity national utility ## Step 2: Estimate Adjusted_EBITDA For regulated utilities, I need to reconstruct EBITDA from the available data. From the income statement data for 2022 (2022-01-01 to 2023-01-01): **Starting with operating profit:** - "Profit Loss From Operating Activities": 961,554,000 EUR **Add back depreciation and amortization:** - "Depreciation And Amortisation Expense": 544,992,000 EUR **Reconstructing EBITDA:** EBITDA = Operating Profit + Depreciation and Amortization EBITDA = 961,554,000 + 544,992,000 = 1,506,546,000 EUR Now I need to check for adjustments per S&P methodology for regulated utilities: - **Lease adjustments**: No lease information is explicitly provided in the data. I'll assume no significant lease adjustments needed unless evidence suggests otherwise. - **Nonrecurring items**: Looking at the data: - "Deterioro YResultado Por Enajenaciones Del Inmovilizado" (Impairment and result from disposal of fixed assets): 488,000 EUR (small, likely nonrecurring loss) - "Miscellaneous Other Operating Income": 77,673,000 EUR - need to assess if nonrecurring - "Miscellaneous Other Operating Expense": 467,088,000 EUR For regulated utilities, S&P mentions they may use regulatory accounts as proxy. However, looking at the items: - The 488,000 EUR impairment/gain on disposal is small and appears to be a loss (positive number in expense format) Let me check if there are any clear nonrecurring gains to subtract or losses to add: - The "Deterioro YResultado Por Enajenaciones Del Inmovilizado" of 488,000 EUR appears to be a small loss (positive in the P&L means expense/loss) Actually, looking more carefully at the structure: "Deterioro YResultado Por Enajenaciones Del Inmovilizado" = 488,000 EUR. In 2021 this was -730,000 EUR (negative, meaning a gain). The positive 488,000 in 2022 suggests a loss. For S&P purposes, small items like this are often not adjusted if they're part of normal operations. Given the regulated utility nature and small size, I'll treat this as part of normal operations. - **Pension adjustments**: No explicit pension data provided - **Joint venture proportional EBITDA**: The company has equity method investments. For FFO calculation, S&P typically adds back dividends from JVs or uses proportional consolidation. Looking at the cash flow: "Dividends Received Classified As Operating Activities" = 7,578,000 EUR. Also "Participacion En Beneficios De Sociedades Valoradas Por El Metodo De La Participacion" (Share of profits of equity-accounted investments) = 50,405,000 EUR. For regulated utilities, S&P generally does NOT proportionalize JVs for EBITDA unless they're integral. The equity earnings are already below operating profit. Let me verify my EBITDA calculation by reconstructing from revenue: Revenue: 2,015,036,000 + Other Work Performed By Entity And Capitalised: 62,903,000 + Participacion En Beneficios... (equity earnings): 50,405,000 + Miscellaneous Other Operating Income: 77,673,000 - Aprovisionamientos (purchases): 37,061,000 - Employee Benefits Expense: 210,614,000 - Miscellaneous Other Operating Expense: 467,088,000 - Depreciation And Amortisation Expense: 544,992,000 - Deterioro... (impairment/disposal): 488,000 - Imputacion De Subvenciones... (grant amortization): -15,780,000 (negative = income) Wait, let me recalculate operating profit: 2,015,036 + 62,903 + 50,405 + 77,673 - 37,061 - 210,614 - 467,088 - 544,992 - 488 + 15,780 = ? = 2,015,036 + 62,903 = 2,077,939 + 50,405 = 2,128,344 + 77,673 = 2,206,017 - 37,061 = 2,168,956 - 210,614 = 1,958,342 - 467,088 = 1,491,254 - 544,992 = 946,262 - 488 = 945,774 + 15,780 = 961,554 ✓ This matches the reported operating profit of 961,554,000. So EBITDA = 961,554,000 + 544,992,000 = 1,506,546,000 EUR For regulated utilities, S&P notes they may adjust for pass-through costs that distort EBITDA. Looking at the revenue structure, this is a transmission operator, so congestion revenue or third-party collections might apply. However, no explicit evidence of significant pass-through costs is provided. Also, for regulated utilities with seasonal working capital, S&P may adjust inventory against short-term borrowings. But this is a transmission utility with minimal inventory (41,321,000 EUR), so likely not material. **Adjusted_EBITDA = 1,506,546,000 EUR** ## Step 3: Estimate FFO Baseline formula: FFO = Adjusted_EBITDA - cash_interest - cash_taxes For regulated utilities, S&P may also add back dividends from equity investments or make other adjustments. Let me check the cash flow statement for cash interest and taxes. From cash flow statement (2022-01-01 to 2023-01-01): - "Interest Paid Classified As Operating Activities": 123,524,000 EUR - "Interest Received Classified As Operating Activities": 15,680,000 EUR - "Income Taxes Paid Refund Classified As Operating Activities": 363,996,000 EUR Net cash interest paid = 123,524,000 - 15,680,000 = 107,844,000 EUR However, S&P typically uses gross cash interest paid (not net of interest received) for FFO calculation, or sometimes just interest paid. Let me check S&P methodology more carefully. Actually, looking at standard S&P methodology: FFO = Adjusted EBITDA - cash interest paid - cash taxes paid + dividends received from investments (sometimes) From the cash flow: - Interest paid: 123,524,000 - Income taxes paid: 363,996,000 For regulated utilities, S&P also considers if working capital adjustments are needed. Looking at the cash flow from operations: 1,566,829,000 EUR. Let me verify: Adjusted EBITDA 1,506,546,000 - cash interest paid 123,524,000 - cash taxes 363,996,000 = 1,019,026,000 But actual CFO is 1,566,829,000. The difference is working capital changes and other items. Actually, S&P FFO is typically calculated as: FFO = Net income from continuing operations + depreciation + deferred taxes + other non-cash items - working capital changes (sometimes) + adjustments Or more commonly for corporates: FFO = Adjusted EBITDA - net cash interest - cash taxes But "net cash interest" could mean interest paid minus interest received, or just interest paid. Looking at S&P's standard approach for utilities: They often use Funds From Operations = Operating Cash Flow - Change in Working Capital (if not already) +/- certain items, or the EBITDA-based approach. Let me use the standard S&P formula: FFO = Adjusted EBITDA - cash interest paid - cash taxes paid Using gross interest paid: 1,506,546,000 - 123,524,000 - 363,996,000 = 1,019,026,000 EUR However, I should check if dividends received should be added. In some S&P methodologies, dividends from equity investments are added back to FFO. The company received 7,578,000 in dividends classified as operating activities. Actually, looking more carefully at S&P methodology: For equity-accounted investments, S&P sometimes adds dividends received to FFO (not equity earnings). The equity earnings of 50,405,000 are already in operating profit (and thus EBITDA). But the cash dividend received is 7,578,000. In the cash flow statement, "Adjustments For Undistributed Profits Of Investments Accounted For Using Equity Method" = 50,405,000 EUR. This is added back to reconcile profit to CFO (since equity earnings are non-cash). Then "Dividends Received Classified As Operating Activities" = 7,578,000 EUR is a cash inflow. For FFO purposes, S&P typically wants to capture sustainable cash generation. The full EBITDA includes equity earnings (non-cash), so we might want to subtract equity earnings and add dividends received, or use a proportional approach. However, the standard formula given is: FFO = Adjusted_EBITDA - cash_interest - cash_taxes Let me check if there are other interpretations. In some S&P utility methodologies, they use: FFO = Net income + depreciation + deferred taxes + other non-cash charges - after-tax interest expense + minority interest Or: FFO can be approximated from CFO by adding back interest paid and subtracting interest received. Let me try: CFO = 1,566,829,000 Add back interest paid: +123,524,000 = 1,690,353,000 Subtract interest received: -15,680,000 = 1,674,673,000 Subtract taxes paid: already in CFO as outflow, so this doesn't work directly. Actually, CFO already includes taxes paid. So if I want pre-interest, pre-tax FFO: CFO + interest paid - interest received + taxes paid = ? No that's double counting. Let me use the EBITDA-based approach more carefully: Adjusted EBITDA = 1,506,546,000 Less: Interest paid (cash) = 123,524,000 Less: Taxes paid (cash) = 363,996,000 FFO = 1,019,026,000 But wait - is interest received part of operations or financing? It's classified as operating in the cash flow. For S&P, interest received is typically part of FFO calculation (reduces the interest burden). Actually, standard S&P FFO = EBIT + depreciation + amortization - cash interest expense - cash taxes Where "cash interest expense" is typically interest paid, and interest received is a separate item that may or may not be included. Looking at this more practically: S&P's FFO is meant to measure cash available to service debt. So: FFO = EBITDA - cash interest paid - cash taxes paid + interest received (if we want net) Or more commonly: FFO = EBIT + D&A - cash taxes (where EBIT is pre-interest, pre-tax) Let me try: EBIT = Operating profit + equity earnings? No, operating profit already includes equity earnings. Actually, operating profit = 961,554,000 includes equity earnings of 50,405,000. EBIT = Operating profit + interest expense (accrual-based) From P&L: Finance Costs = 116,468,000; Finance Income = 23,161,000 So net finance cost = 93,307,000 Profit before tax = 869,517,000 So EBIT = 869,517,000 + 116,468,000 = 985,985,000? Or = 961,554,000 + 93,307,000 = 1,054,861,000? No wait. Actually: Operating profit + finance income - finance cost = PBT 961,554,000 + 23,161,000 - 116,468,000 = 868,247,000? But reported PBT is 869,517,000. Small difference of 1,270,000 likely due to other items. Let me use: EBIT ≈ Operating profit + net finance cost (if we define EBIT as pre-interest, pre-tax) = 961,554,000 + (116,468,000 - 23,161,000) = 1,054,861,000? No that's wrong too. Actually, standard definition: EBIT = Earnings Before Interest and Taxes If operating profit is already before interest and taxes, then EBIT = Operating profit = 961,554,000? But wait - "Profit Loss From Operating Activities" in IFRS typically means operating profit, which is before finance costs and taxes. However, in some presentations, it includes finance income/costs. Looking at the structure: Revenue... down to "Profit Loss From Operating Activities" = 961,554,000, then "Finance Income", "Finance Costs", etc., then "Profit Loss Before Tax" = 869,517,000. So yes, Operating Activities profit = 961,554,000 is before finance items and tax. Thus EBIT = 961,554,000? Not quite - EBIT typically excludes equity earnings and other non-operating items. But for S&P purposes, they often use a broad measure. Let me stick with: EBITDA = 1,506,546,000 For FFO, S&P standard for utilities: FFO = Net income + D&A + deferred taxes + other non-cash items - working capital changes (if using indirect)... Or from the direct formula: FFO = Adjusted EBITDA - cash interest - cash taxes I'll use: FFO = 1,506,546,000 - 123,524,000 - 363,996,000 = 1,019,026,000 EUR But I need to consider if interest received should offset interest paid. In many S&P methodologies, "cash interest" means net interest paid (interest paid - interest received). Net interest paid = 123,524,000 - 15,680,000 = 107,844,000 Then FFO = 1,506,546,000 - 107,844,000 - 363,996,000 = 1,034,706,000 EUR Also, for equity investments, S&P sometimes makes an adjustment. The equity earnings of 50,405,000 are non-cash (added back in CFO reconciliation), while dividends of 7,578,000 are cash received. If we think of sustainable FFO, we might want to subtract the non-cash equity earnings from EBITDA and add the cash dividends: Adjusted EBITDA' = 1,506,546,000 - 50,405,000 + 7,578,000 = 1,463,719,000 Then FFO = 1,463,719,000 - 107,844,000 - 363,996,000 = 991,879,000 But this is getting complicated. Let me check what S&P typically does for utilities with equity investments. Actually, re-reading the methodology provided: For regulated utilities, S&P says "We do not adjust GAAP earnings or balance-sheet figures to remove the effects of regulatory accounting." And "our financial analysis focuses on the economics and actual cash flow generation." For the FFO formula given in the instructions: FFO = Adjusted_EBITDA - cash_interest - cash_taxes I'll interpret "cash_interest" as net cash interest paid (interest paid minus interest received), which is standard for S&P. Net cash interest = 123,524,000 - 15,680,000 = 107,844,000 EUR **FFO = 1,506,546,000 - 107,844,000 - 363,996,000 = 1,034,706,000 EUR** Wait - I should also consider if there are other adjustments. Looking at the operating cash flow, there's a line "Other Inflows Outflows Of Cash Classified As Operating Activities" of -5,565,000 EUR. This might be non-recurring or unusual. Also, "Otros Flujos De Efectivo De Las Actividades De Explotacion" = -469,827,000 EUR. This is a significant outflow. Let me understand what this includes. Actually, looking at the cash flow structure more carefully: - Cash Flows From Used In Operating Activities: 1,566,829,000 This is the net CFO. The reconciliation shows: - Profit Loss: 681,187,000 - Adjustments For Reconcile Profit Loss: 592,571,000 - Increase Decrease In Working Capital: 574,568,000 - Other items: interest paid, dividends received, interest received, taxes paid, other Let me verify: 681,187 + 592,571 + 574,568 - 123,524 + 7,578 + 15,680 - 363,996 - 5,565 = ? = 1,273,758 + 574,568 = 1,848,326 - 123,524 = 1,724,802 + 7,578 = 1,732,380 + 15,680 = 1,748,060 - 363,996 = 1,384,064 - 5,565 = 1,378,499 Hmm, this doesn't match 1,566,829. I'm missing something. The "Otros Flujos De Efectivo De Las Actividades De Explotacion" = -469,827,000 might be part of this. Actually, looking at the structure again, I think "Otros Flujos De Efectivo De Las Actividades De Explotacion" is a separate category that includes the interest, dividends, taxes, and other items. Let me try: 681,187 + 592,571 + 574,568 - 469,827 = 1,378,499. Still doesn't match. Actually, I think the issue is that "Otros Flujos De Efectivo De Las Actividades De Explotacion" is a negative number in the database but represents a collection of items. Let me look at the sub-items: - Interest Paid Classified As Operating Activities: 123,524,000 (outflow, positive = paid) - Dividends Received: 7,578,000 (inflow, positive = received) - Interest Received: 15,680,000 (inflow) - Income Taxes Paid Refund: 363,996,000 (outflow, positive = paid) - Other Inflows Outflows: -5,565,000 (negative = inflow? or outflow?) If "Otros Flujos" = -469,827,000 is the total of these, then: -123,524 + 7,578 + 15,680 - 363,996 + (-5,565) = -469,827? -123,524 + 7,578 = -115,946 + 15,680 = -100,266 - 363,996 = -464,262 - 5,565 = -469,827 ✓ Yes! So "Other Inflows Outflows Of Cash Classified As Operating Activities" = -5,565,000 means it's an inflow (negative in the outflow category). So CFO = 681,187 + 592,571 + 574,568 - 469,827 = 1,378,499? Still not 1,566,829. Wait, let me re-check: 681,187 + 592,571 = 1,273,758 + 574,568 = 1,848,326 - 469,827 = 1,378,499 Difference from reported CFO of 1,566,829 is 188,330. Hmm, this is exactly the "Income Tax Expense Continuing Operations" of 188,330,000. But taxes paid is 363,996, not 188,330. Actually, I think I need to re-read the cash flow structure. The "Otros Flujos De Efectivo De Las Actividades De Explotacion" might be presented differently. Let me try another approach: CFO = Operating profit + adjustments - working capital changes - interest paid + interest received + dividends received - taxes paid + other = 961,554 + 544,992 - 50,405 + 708 + ... this is getting messy with signs. Actually, for S&P FFO purposes, the standard approach using the given formula should suffice. Let me stick with: **FFO = 1,034,706,000 EUR** (using net interest) But I want to double-check if we should use gross or net interest. S&P typically uses "cash interest paid" not "net cash interest." However, for utilities with significant interest income, they may use net. Looking at S&P's general methodology: "FFO = funds from operations, which we define as net income from continuing operations adjusted for non-cash items and changes in working capital, minus net interest expense." Actually, standard S&P FFO definition is closer to: Net income + depreciation + amortization + deferred taxes + other non-cash charges - after-tax interest expense. Or for the EBITDA-based approach: FFO = EBITDA - cash interest - cash taxes I think "cash interest" here means interest paid, not net. Let me recalculate with gross interest paid: **FFO = 1,506,546,000 - 123,524,000 - 363,996,000 = 1,019,026,000 EUR** I'll use this as my primary estimate, but note that using net interest would give 1,034,706,000. Actually, re-thinking: In many European utility presentations, interest received is part of operating cash flow and should be considered. However, for debt service coverage, S&P typically looks at "funds available to service debt" which would be before interest and taxes. Let me also consider if S&P would make a working capital adjustment. For regulated utilities with seasonal working capital, they mention netting inventory against short-term borrowings. But here inventory is small. I'll proceed with **FFO = 1,019,026,000 EUR** using gross interest, or consider if net is more appropriate. Actually, looking at this from another angle: The company's "Finance Income Cost" (net) = -92,037,000 EUR (expense). Cash interest paid is 123,524,000. The difference includes interest received (15,680,000) and other finance items. For S&P's FFO-to-debt ratio, they want to measure cash available to pay debt. Interest received is available cash. So net interest expense is more relevant. I'll use **FFO = 1,034,706,000 EUR** with net interest. But let me also check if there's a standard adjustment for equity earnings. In some cases, S&P adds back the cash dividend from JVs rather than the equity earnings. Here, dividends received = 7,578,000, while equity earnings = 50,405,000. The difference is 42,827,000 non-cash. If we adjust EBITDA to be more "cash-based": EBITDA_cash = 1,506,546,000 - 50,405,000 + 7,578,000 = 1,463,719,000 FFO = 1,463,719,000 - 107,844,000 - 363,996,000 = 991,879,000 However, this is not standard. Equity earnings are typically included in EBITDA for S&P purposes unless they're explicitly excluded. I'll stick with **FFO = 1,019,026,000 EUR** (using gross interest paid) as the most standard interpretation, or **1,034,706,000** with net interest. Given the ambiguity, let me check which is more conservative. Using gross interest gives lower FFO, which is more conservative for credit analysis. S&P typically uses conservative approaches. Actually, I realize I should re-read the formula more carefully. The given formula is: FFO = Adjusted_EBITDA - cash_interest - cash_taxes "cash_interest" likely means cash interest expense, i.e., interest paid, not net of interest received. **FFO = 1,019,026,000 EUR** ## Step 4: Estimate Adjusted_Debt Baseline formula: Adjusted_Debt = (reported_debt + leases + pension_deficit + guarantees + hybrid_debt_portion + other_debt_like_items) - eligible_cash For regulated utilities, S&P mentions: - Deconsolidate securitized debt with specialized recovery provisions - May adjust for seasonal working capital by netting inventory against short-term borrowings - For purchased power contracts, adjust for debt-like obligations Let me identify debt from the balance sheet (2022-12-31, i.e., 2023-01-01): **Current financial liabilities:** - "Current Financial Liabilities": 1,705,277,000 EUR - "Current Borrowings And Current Portion Of Noncurrent Borrowings": 721,845,000 - "Other Current Financial Liabilities": 983,432,000 **Noncurrent financial liabilities:** - "Noncurrent Financial Liabilities": 5,543,755,000 EUR - "Longterm Borrowings": 5,491,124,000 - "Other Noncurrent Financial Liabilities": 52,631,000 **Total reported debt = Current borrowings + Long-term borrowings + Other financial liabilities that are debt-like** Let me categorize: - Short-term borrowings/current portion: 721,845,000 - Long-term borrowings: 5,491,124,000 - Other current financial liabilities: 983,432,000 (need to assess if debt-like) - Other noncurrent financial liabilities: 52,631,000 (need to assess) "Other Current Financial Liabilities" of 983,432,000 - this could include trade payables, accruals, or debt-like items. Looking at the payables structure: - "Trade And Other Current Payables": 1,160,176,000 - "Trade And Other Current Payables To Trade Suppliers": 485,624,000 - "Other Current Payables": 661,232,000 So "Other Current Financial Liabilities" (983,432,000) is separate from trade payables. This likely includes bank overdrafts, short-term debt instruments, or other financial obligations. Similarly, "Other Noncurrent Financial Liabilities" (52,631,000) is separate from long-term borrowings. For S&P purposes, total debt typically includes: - All borrowings (short-term and long-term) - Bank overdrafts - Capital leases - Debt-like pension obligations - Hybrid instruments (equity portion treated as debt) Let me use a comprehensive approach: Reported debt = 721,845,000 + 5,491,124,000 + 983,432,000 + 52,631,000 = 7,249,032,000 EUR Wait - is "Other Current Financial Liabilities" part of debt? Looking at IFRS balance sheet structure, "financial liabilities" typically means debt instruments, derivatives, and obligations under financial contracts. But "Other Current Financial Liabilities" could include derivatives or other items. Actually, looking more carefully at the structure: - "Current Financial Liabilities" total = 1,705,277,000 - Comprised of: Current Borrowings And Current Portion Of Noncurrent Borrowings: 721,845,000 - Other Current Financial Liabilities: 983,432,000 The "Other Current Financial Liabilities" likely includes the current portion of derivatives and other financial obligations. Similarly for noncurrent. Total financial liabilities = 1,705,277,000 + 5,543,755,000 = 7,249,032,000 But we need to check what's in "Other Current Financial Liabilities." It could include: - Derivative liabilities (current portion) - Current portion of finance lease obligations - Other debt-like items Looking at the derivative information: - "Current Derivative Financial Liabilities": 7,053,000 (this is very small) - "Noncurrent Derivative Financial Liabilities": 22,016,000 So derivatives are separately identified and relatively small. The large "Other Current Financial Liabilities" of 983,432,000 is likely mostly debt-like. Let me assume it's debt for S&P purposes. Similarly, "Other Noncurrent Financial Liabilities" of 52,631,000 - this is small. **Total reported debt = 7,249,032,000 EUR** Now, adjustments: - **Leases**: No explicit lease liability identified. Under IFRS 16, leases would be in borrowings. The data doesn't break this out separately. I'll assume included in borrowings or not material. - **Pension deficit**: No explicit pension liability identified. "Other Longterm Provisions" = 139,822,000 could include some pension-related items, but no clear pension deficit. - **Guarantees**: No explicit guarantees disclosed. - **Hybrid debt portion**: No hybrid instruments identified. - **Other debt-like items**: Need to assess if there are any. For regulated utilities, S&P mentions purchased power contract adjustments. But this is a transmission company, not a distribution company with purchased power obligations. Transmission companies typically don't have significant purchased power contracts. Also, S&P mentions netting seasonal working capital: "we adjust inventory and debt balances by netting the value of inventory against outstanding short-term borrowings." Here inventory = 41,321,000, short-term borrowings = 721,845,000. The seasonal adjustment would reduce debt by 41,321,000? Actually, S&P says "netting the value of inventory against outstanding short-term borrowings" - this means if inventory is financed by short-term borrowings, we can reduce both. But this is only for seasonal working capital when "we are very confident of near-term cost recovery." For a transmission utility, inventory is minimal and not seasonal. Likely no adjustment needed. **Eligible cash**: S&P typically nets "excess cash" against debt. Cash and cash equivalents = 794,824,000. But not all cash may be eligible - some may be restricted or needed for operations. For utilities, S&P typically considers cash as eligible unless clearly restricted. However, they may not fully net cash if it's needed for working capital or other purposes. Looking at the cash flow, the company had significant cash decrease in 2022 (from 1,574,427,000 to 794,824,000). This suggests cash is being used for investments or debt repayment. Standard S&P approach: Adjusted Debt = Total Debt - Cash and Cash Equivalents (or sometimes only excess cash) If we use full cash netting: 7,249,032,000 - 794,824,000 = 6,454,208,000 But I need to check if there are other financial assets that should be considered. "Other Current Financial Assets" = 752,505,000 (at amortized cost). This could be short-term investments or deposits that are essentially cash-like. Also "Noncurrent Financial Assets" = 275,593,000, with portions at fair value and amortized cost. For S&P purposes, "eligible cash" typically includes: - Cash and cash equivalents - Short-term, highly liquid investments that are readily convertible to cash "Current Financial Assets At Amortised Cost" = 752,505,000 could be cash-like (e.g., deposits, short-term loans). If we include this as eligible cash: 794,824,000 + 752,505,000 = 1,547,329,000 But we need to be careful - these could be operating receivables or other items. Looking at the structure, "Current Financial Assets At Amortised Cost" is separate from "Trade And Other Current Receivables." Actually, looking at the balance sheet: - Trade And Other Current Receivables: 1,358,657,000 - Current Trade Receivables: 75,081,000 - Other Current Receivables: 1,101,079,000 - Current Tax Assets: 182,497,000 - Other Current Financial Assets: 752,505,000 (all at amortized cost) The "Other Current Financial Assets" is separate from trade receivables and tax assets. This is likely short-term deposits, loans to related parties, or other financial instruments. For S&P debt adjustments, cash-like financial assets are typically netted against debt if they're truly liquid and available. However, the standard approach is usually just "Cash And Cash Equivalents" for the cash netting. Let me also check if there are any restricted cash disclosures. None apparent in the data. I'll use two approaches: 1. Conservative: No cash netting (or minimal) 2. Standard: Net cash and cash equivalents For S&P's typical regulated utility analysis, they do net cash against debt. Let me use: **Adjusted_Debt = 7,249,032,000 - 794,824,000 = 6,454,208,000 EUR** But wait - I need to re-examine what's in "Other Current Financial Liabilities." Let me check if this includes trade payables or other non-debt items. Looking at the liability structure: - Current Liabilities total: 2,903,042,000 - Current Provisions: 30,536,000 - Current Financial Liabilities: 1,705,277,000 - Trade And Other Current Payables: 1,160,176,000 - Current Tax Liabilities: 13,320,000 - Current Derivative Financial Liabilities: 7,053,000 Wait, this doesn't add up: 30,536 + 1,705,277 + 1,160,176 + 13,320 + 7,053 = 2,916,362, which is close to 2,903,042 but not exact. Difference of 13,320,000 might be rounding or classification. Actually, "Current Derivative Financial Liabilities" of 7,053,000 might be included in "Current Financial Liabilities" or separate. Looking at the total: 30,536 + 1,705,277 + 1,160,176 + 13,320 + 7,053 = 2,916,362. But reported is 2,903,042. Difference is 13,320,000, which equals "Current Tax Liabilities." Maybe tax liabilities are included in "Trade And Other Current Payables" or elsewhere. Actually, I think "Current Tax Liabilities" of 13,320,000 might be part of the 1,160,176,000 "Trade And Other Current Payables." Let me check: 485,624 + 661,232 = 1,146,856, not 1,160,176. Difference is 13,320,000. Yes! So "Current Tax Liabilities" is included in "Trade And Other Current Payables" but also broken out. Similarly for noncurrent: "Other Noncurrent Liabilities" = 114,461,000 might include "Deferred Tax Liabilities" of 417,650,000? No, those are separate. Let me focus on debt items only: - Current Borrowings And Current Portion Of Noncurrent Borrowings: 721,845,000 - Longterm Borrowings: 5,491,124,000 - Other Current Financial Liabilities: 983,432,000 - Other Noncurrent Financial Liabilities: 52,631,000 Total = 7,249,032,000 Now, are "Other Current Financial Liabilities" and "Other Noncurrent Financial Liabilities" truly debt? In IFRS, "financial liabilities" are defined as contractual obligations to deliver cash or another financial asset. This includes: - Trade payables - Borrowings - Derivatives - Other contractual obligations to pay "Other Financial Liabilities" typically means financial liabilities other than borrowings and derivatives. This could include: - Finance lease obligations - Payables under factoring arrangements - Other contractual payment obligations For S&P purposes, these are typically treated as debt. However, I need to check if "Other Current Financial Liabilities" might include trade payables or other operating liabilities. Looking at the structure, trade payables are separately identified as "Trade And Other Current Payables To Trade Suppliers" and "Other Current Payables." So "Other Current Financial Liabilities" is distinct from trade payables. Actually, looking more carefully: "Trade And Other Current Payables" = 1,160,176,000 includes trade suppliers and other payables. "Current Financial Liabilities" = 1,705,277,000 is separate. So "Other Current Financial Liabilities" of 983,432,000 is financial, not trade/operating. But what exactly is it? It could include: - Short-term debt instruments (commercial paper, etc.) - Current portion of finance leases - Bank overdrafts - Other short-term borrowings not classified as "borrowings" For S&P debt purposes, this should be included. Similarly, "Other Noncurrent Financial Liabilities" of 52,631,000 could be: - Noncurrent finance leases - Other long-term financial obligations I'll include these in debt. **Total debt = 7,249,032,000 EUR** Now, for cash netting: - Cash And Cash Equivalents: 794,824,000 Should I also consider "Current Financial Assets At Amortised Cost" of 752,505,000? These are likely short-term deposits or loans that could be considered cash-like. However, S&P typically only nets "cash and cash equivalents" unless other items are explicitly identified as excess cash. For conservatism and standard practice, I'll use: **Adjusted_Debt = 7,249,032,000 - 794,824,000 = 6,454,208,000 EUR** But let me also consider if the "Other Current Financial Assets" should be netted. If these are truly cash-like (e.g., short-term bank deposits), then: Adjusted_Debt = 7,249,032,000 - 794,824,000 - 752,505,000 = 5,701,703,000 However, without knowing exactly what these are, I'll be conservative and not net them. Wait - I need to re-check. Looking at the cash flow statement, the company purchased financial instruments classified as investing activities for 1,532,512,000 and had proceeds of 686,979,000. This suggests significant investment activity. The "Current Financial Assets At Amortised Cost" could be part of this investment portfolio. For S&P purposes, if these are liquid investments (e.g., money market funds, short-term bonds), they might be considered as part of "excess cash" or liquidity. But if they're longer-term investments, they might not be. Given the classification as "current" and "at amortized cost," these are likely short-term, held-to-maturity investments that are fairly liquid. However, S&P's standard approach is to only net cash and cash equivalents against debt. I'll stick with **Adjusted_Debt = 6,454,208,000 EUR** But I want to double-check my debt calculation. Let me see if there's a simpler way to calculate total debt from the balance sheet. Actually, looking at this from another angle: Total liabilities = 9,887,244,000 (from Equity And Liabilities 14,781,520,000 - Equity 4,894,276,000) But not all liabilities are debt. We need to exclude: - Trade payables (operating) - Tax payables - Provisions (operating/uncertain timing) - Deferred taxes - Government grants From noncurrent liabilities: - Noncurrent Government Grants: 746,498,000 (not debt - deferred income) - Other Longterm Provisions: 139,822,000 (not debt) - Deferred Tax Liabilities: 417,650,000 (not debt) - Other Noncurrent Liabilities: 114,461,000 (need to assess) From current liabilities: - Current Provisions: 30,536,000 (not debt) - Trade And Other Current Payables: 1,160,176,000 (operating, not debt) - Current Tax Liabilities: 13,320,000 (not debt) So debt-like liabilities are: - Noncurrent Financial Liabilities: 5,543,755,000 - Current Financial Liabilities: 1,705,277,000 - Maybe part of Other Noncurrent Liabilities if debt-like Total financial liabilities = 7,249,032,000 This seems correct. Now, should I subtract "Noncurrent Government Grants" or other items? No, these are already excluded from financial liabilities. Let me verify: Noncurrent Liabilities = 6,984,202,000 = Noncurrent Government Grants (746,498) + Other Longterm Provisions (139,822) + Noncurrent Financial Liabilities (5,543,755) + Deferred Tax Liabilities (417,650) + Noncurrent Derivative Financial Liabilities (22,016) + Other Noncurrent Liabilities (114,461) = 746,498 + 139,822 + 5,543,755 + 417,650 + 22,016 + 114,461 = 6,984,202 ✓ Wait, I missed "Noncurrent Derivative Financial Liabilities" of 22,016,000 in my debt calculation! Is this included in "Noncurrent Financial Liabilities"? Looking at the breakdown: "Noncurrent Financial Liabilities" = 5,543,755,000 = Longterm Borrowings (5,491,124) + Other Noncurrent Financial Liabilities (52,631) But "Noncurrent Derivative Financial Liabilities" is 22,016,000. Is this included in "Other Noncurrent Financial Liabilities" or separate? Total noncurrent liabilities = 6,984,202 Sum of identified: 746,498 + 139,822 + 5,543,755 + 417,650 + 22,016 + 114,461 = 6,984,202 So "Noncurrent Derivative Financial Liabilities" of 22,016 is separate from "Noncurrent Financial Liabilities" of 5,543,755. But wait, are derivatives "debt"? For S&P purposes, derivative liabilities are typically included in debt if they're interest rate or currency hedges related to debt. But they might not be included in "total debt" if they're operating hedges. However, looking at the current liabilities: "Current Derivative Financial Liabilities" = 7,053,000. Is this included in "Current Financial Liabilities" of 1,705,277? Current liabilities total = 2,903,042 = 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) = 30,536 + 1,705,277 + 1,160,176 + 13,320 + 7,053 = 2,916,362 But reported is 2,903,042. Difference is 13,320,000, which equals Current Tax Liabilities. So Current Tax Liabilities is likely included in Trade And Other Current Payables, not separate. Actually: 30,536 + 1,705,277 + 1,160,176 + 7,053 = 2,903,042 ✓ So "Current Derivative Financial Liabilities" of 7,053 is separate from "Current Financial Liabilities" of 1,705,277. Similarly for noncurrent: 746,498 + 139,822 + 5,543,755 + 417,650 + 22,016 + 114,461 = 6,984,202 Wait, let me check: 746,498 + 139,822 = 886,320 + 5,543,755 = 6,430,075 + 417,650 = 6,847,725 + 22,016 = 6,869,741 + 114,461 = 6,984,202 ✓ So "Noncurrent Derivative Financial Liabilities" of 22,016 is separate from "Noncurrent Financial Liabilities" of 5,543,755. For S&P debt purposes, derivative liabilities related to financing are typically included in debt. However, if they're related to operations (commodity hedges), they might not be. Given this is a transmission utility, derivatives are likely interest rate or currency hedges on debt. I'll include them. Revised debt calculation: - Current Borrowings And Current Portion Of Noncurrent Borrowings: 721,845,000 - Other Current Financial Liabilities: 983,432,000 - Longterm Borrowings: 5,491,124,000 - Other Noncurrent Financial Liabilities: 52,631,000 - Current Derivative Financial Liabilities: 7,053,000 - Noncurrent Derivative Financial Liabilities: 22,016,000 Total = 7,278,101,000 EUR Wait, I need to check if derivatives are already included in "Financial Liabilities" totals. Looking at the naming: - "Current Financial Liabilities" = 1,705,277,000 (this might or might not include derivatives) - "Noncurrent Financial Liabilities" = 5,543,755,000 (this might or might not include derivatives) Actually, in standard IFRS presentation, derivative financial liabilities are often presented separately or included within financial liabilities. The fact that they're broken out separately suggests they might not be in the "Financial Liabilities" totals, or they might be. Let me check: If "Current Financial Liabilities" includes derivatives, then: Current Financial Liabilities = 1,705,277 = Current Borrowings (721,845) + Other Current Financial Liabilities (983,432) + Current Derivatives (?) But 721,845 + 983,432 = 1,705,277 exactly. So "Current Financial Liabilities" does NOT include current derivatives separately - they're either in "Other Current Financial Liabilities" or not included. Similarly: 5,491,124 + 52,631 = 5,543,755 exactly. So "Noncurrent Financial Liabilities" does NOT include noncurrent derivatives separately. Therefore, derivative liabilities are separate from the "Financial Liabilities" totals. For S&P debt purposes, should I include derivative liabilities? Typically yes, if they're debt-related hedges. But they might be operating hedges. Given the small amounts (29,069,000 total), this won't materially affect the ratio. I'll include them for completeness. **Total reported debt = 7,249,032,000 + 29,069,000 = 7,278,101,000 EUR** Or, if we consider that "Other Current Financial Liabilities" and "Other Noncurrent Financial Liabilities" might already include some derivative-related amounts, we might be double-counting. But based on the exact sums, they don't. Actually, let me reconsider. "Current Derivative Financial Liabilities" and "Noncurrent Derivative Financial Liabilities" are presented as separate line items in the balance sheet, not included in the subtotals. So I should add them. But wait - are these "debt-like"? Derivative liabilities can be: - Interest rate swaps (debt-related) - Currency forwards (debt-related or operating) - Commodity hedges (operating) For a transmission utility, most derivatives are likely debt-related (interest rate hedges). I'll include them. **Reported debt = 7,278,101,000 EUR** **Adjusted_Debt = 7,278,101,000 - 794,824,000 = 6,483,277,000 EUR** Hmm, but I want to check if there are any other debt-like items. Looking at "Other Noncurrent Liabilities" = 114,461,000. What is this? It could be: - Deferred income (non-government) - Asset retirement obligations - Other long-term obligations For S&P purposes, some of these might be debt-like. But without more information, I'll exclude them. Also, "Other Current Payables" = 661,232,000 - this is part of trade payables, so operating, not debt. Let me also check if there are any lease obligations. Under IFRS 16, these would be in "Borrowings" or "Other Financial Liabilities." No separate disclosure, so assumed included. **Final Adjusted_Debt = 6,483,277,000 EUR** (or 6,454,208,000 if excluding derivatives) Given the small impact of derivatives, I'll use **Adjusted_Debt = 6,454,208,000 EUR** as my primary estimate (excluding derivatives as they're not clearly debt-like, or including them gives 6,483,277,000). Actually, let me reconsider the derivative treatment. S&P typically includes derivative liabilities at fair value as part of "total debt" if they're liabilities. However, for net debt calculations, they sometimes exclude them or treat them differently. For consistency and given the small amounts, I'll use **Adjusted_Debt = 6,454,208,000 EUR** (without derivatives) or note that including them gives 6,483,277,000. Let me also check if I should include "Other Current Financial Assets" as eligible cash. Looking at S&P's methodology for utilities: they mention netting inventory against short-term borrowings for seasonal working capital, but don't mention netting other financial assets. For standard corporate analysis, S&P's "adjusted debt" typically includes: - Total debt (borrowings + capital leases + commercial paper + bank overdrafts + debt-like pension obligations + guarantees + preferred stock + hybrid debt) - Less: cash and cash equivalents (sometimes only "excess cash") So I'll stick with **Adjusted_Debt = 6,454,208,000 EUR** ## Step 5: Calculate FFO / Adjusted_Debt Using: - FFO = 1,019,026,000 EUR (with gross interest) - Adjusted_Debt = 6,454,208,000 EUR FFO / Adjusted_Debt = 1,019,026,000 / 6,454,208,000 = 0.1579 Or with net interest FFO = 1,034,706,000: FFO / Adjusted_Debt = 1,034,706,000 / 6,454,208,000 = 0.1603 Or with derivatives included in debt (6,483,277,000): With gross interest: 1,019,026,000 / 6,483,277,000 = 0.1572 With net interest: 1,034,706,000 / 6,483,277,000 = 0.1596 Let me also consider if I should use a different FFO. Looking back at the cash flow statement, CFO = 1,566,829,000. This is much higher than my FFO estimate because it includes working capital changes and other items. S&P's FFO is typically closer to "operating cash flow before working capital changes" or "EBITDA - cash interest - cash taxes." The CFO includes: - Working capital increase of 574,568,000 (positive = source of cash, meaning working capital decreased or was a positive contributor) Actually, "Increase Decrease In Working Capital" = 574,568,000. In the cash flow, this is added to profit. So working capital changes provided cash. For S&P FFO, we typically exclude working capital changes because they're not sustainable. So my EBITDA-based approach is correct. However, let me verify with another approach: S&P sometimes calculates FFO as: FFO = Net income + D&A + deferred taxes + other non-cash charges + after-tax interest expense - equity earnings + dividends received Or: FFO = EBIT + D&A - cash taxes (this is essentially EBITDA - cash taxes if EBIT is pre-interest) Wait, I need to be more careful. Let me use S&P's standard definition: From S&P methodology: "Funds from operations (FFO): Net income from continuing operations adjusted for non-cash items and changes in working capital, minus net interest expense." Or more practically: FFO = Operating cash flow - working capital changes - after-tax interest received + after-tax interest paid... this gets complicated. Let me use the most common S&P formula for corporates: FFO = Net income + depreciation + amortization + deferred taxes + other non-cash items - after-tax interest expense Where "after-tax interest expense" = interest expense × (1 - tax rate) Or: FFO = EBIT + D&A - cash taxes EBIT = Operating profit? Not exactly, because operating profit includes equity earnings. Let me try: EBIT = Profit before tax + interest expense = 869,517,000 + 116,468,000 = 985,985,000? But this includes equity earnings and finance income. Actually, "Finance Costs" = 116,468,000 and "Finance Income" = 23,161,000. So net finance cost = 93,307,000. PBT = Operating profit + finance income - finance cost = 961,554 + 23,161 - 116,468 = 868,247. But reported PBT is 869,517. Difference of 1,270,000. Actually, looking at the P&L: "Profit Loss From Operating Activities" = 961,554, then "Finance Income" = 23,161, "Finance Costs" = 116,468, then "Gains Losses On Financial Assets..." = 1,196, "Gains Losses On Exchange Differences..." = 74, then "Finance Income Cost" = -92,037 (which is 23,161 + 1,196 + 74 - 116,468 = -92,037). Then PBT = 961,554 - 92,037 = 869,517 ✓ So EBIT (earnings before interest and taxes) would be: PBT + interest expense = 869,517 + 116,468 = 985,985? But this includes finance income. More precisely, EBIT = Operating profit + finance income (if any that's operating-related) = 961,554 + ? Actually, for S&P purposes, "EBIT" is often "operating profit" or "EBIT including equity earnings." Let me just use: EBITDA = 1,506,546,000 as calculated. Now for "cash taxes": I used 363,996,000 from cash flow. But tax expense is 188,330,000. The difference is timing (deferred taxes, etc.). For S&P FFO, should I use cash taxes paid or tax expense? The formula says "cash_taxes", so cash taxes paid is correct. Similarly, "cash_interest" should be interest paid, not interest expense. So my calculation of FFO = 1,506,546,000 - 123,524,000 - 363,996,000 = 1,019,026,000 seems correct. But wait - is this too low compared to CFO? Let me think about what else is in CFO. CFO = 1,566,829,000 = Profit 681,187,000 + Adjustments 592,571,000 (including D&A 544,992, equity earnings adjustment 50,405, etc.) + Working capital 574,568,000 - Interest paid 123,524,000 + Dividends received 7,578,000 + Interest received 15,680,000 - Taxes paid 363,996,000 + Other 5,565,000? (or -5,565,000) Actually, the "Other Inflows Outflows" = -5,565,000 means inflow of 5,565,000 (negative sign in outflow category). Let me recalculate: 681,187 + 592,571 + 574,568 - 469,827 = 1,378,499? No, the "Otros Flujos" = -469,827 includes interest, dividends, taxes, other. Let me try: 681,187 + 592,571 + 574,568 + (-469,827) + other items = ? Actually, I think "Otros Flujos De Efectivo De Las Actividades De Explotacion" = -469,827,000 is the net of: - Interest paid: -123,524,000 (outflow) - Dividends received: +7,578,000 (inflow) - Interest received: +15,680,000 (inflow) - Taxes paid: -363,996,000 (outflow) - Other: +5,565,000? or -5,565,000? Sum: -123,524 + 7,578 + 15,680 - 363,996 = -464,262 Plus other: if -5,565,000 is outflow, then -464,262 - 5,565 = -469,827 ✓ So "Other Inflows Outflows Of Cash Classified As Operating Activities" = -5,565,000 is an outflow (positive 5,565 in outflow category = outflow, or negative means inflow? I had it as -5,565,000 in the data). Wait, the data says: "Other Inflows Outflows Of Cash Classified As Operating Activities" 2022-01-01 - 2023-01-01: -5565000 EUR Negative means... inflow? Because it's "inflows outflows" - negative means net inflow? Or in the database, negative means outflow? Actually, looking at "Interest Paid Classified As Operating Activities": 123524000 (positive, clearly an outflow/payment). "Other Inflows Outflows Of Cash Classified As Operating Activities": -5565000 - negative, so likely net inflow. But in my calculation above, I needed it to be +5,565 (inflow) to get to -469,827. Wait no: -123,524 + 7,578 + 15,680 - 363,996 = -464,262 To get -469,827, I need additional -5,565, meaning an outflow of 5,565. So if "Other Inflows Outflows" = -5,565, and this represents an outflow in the presentation... hmm, the signs are confusing. Actually, let me just accept that CFO = 1,566,829,000 and my FFO calculation is a simplified version that excludes working capital and other non-sustainable items. Given that S&P's FFO is meant to be a "normalized" cash flow measure, my approach is appropriate. Let me finalize my numbers: **Adjusted_EBITDA = 1,506,546,000 EUR** **FFO = 1,506,546,000 - 123,524,000 - 363,996,000 = 1,019,026,000 EUR** Or with net interest: 1,506,546,000 - (123,524,000 - 15,680,000) - 363,996,000 = 1,034,706,000 EUR I'll use the gross interest version as more conservative and standard: **FFO = 1,019,026,000 EUR** **Adjusted_Debt = 6,454,208,000 EUR** (7,249,032,000 - 794,824,000) Or if we include derivatives in debt: 6,483,277,000 EUR I'll use **Adjusted_Debt = 6,454,208,000 EUR** as primary. **FFO / Adjusted_Debt = 1,019,026,000 / 6,454,208,000 = 0.1579** Let me verify this calculation: 1,019,026,000 ÷ 6,454,208,000 = ? 1,019,026 / 6,454,208 = 0.157886... Rounded to four decimal places: **0.1579** Or with net interest FFO: 1,034,706,000 / 6,454,208,000 = 0.1603 And with derivatives in debt and gross interest: 1,019,026,000 / 6,483,277,000 = 0.1572 Given the range of reasonable estimates (0.1572 to 0.1603), I'll use the middle or most standard approach. Actually, let me reconsider one more time. Should I use "cash interest" as net or gross? In S&P's methodology document for regulated utilities, they mention: "Where substantial seasonal working capital requirements...distort leverage measures, we adjust inventory and debt balances." They don't specifically address interest received. However, in general S&P corporate methodology, "cash interest" typically means interest paid, and interest received is treated separately (often as part of "other income" or excluded from FFO). Actually, looking at S&P's standard FFO definition more carefully: FFO is typically calculated from the bottom up as: - Net income + D&A + Deferred taxes + Other non-cash charges - After-tax interest expense (or + interest expense for pre-interest measure) Wait, I think I've been confusing two different measures. Let me clarify: S&P's "FFO" (Funds From Operations) is typically: - Net income from continuing operations + Depreciation and amortization + Deferred income taxes + Other non-cash items - After-tax interest expense (if starting from net income) OR, equivalently: - EBIT + Depreciation and amortization - Cash taxes This gives "EBITDA - cash taxes" which is slightly different from my formula. Actually, the formula given in the instructions is: FFO = Adjusted_EBITDA - cash_interest - cash_taxes This suggests starting from EBITDA and subtracting both cash interest and cash taxes, which gives a measure of cash flow after debt service and taxes. But wait - if we start with EBITDA and subtract cash interest and cash taxes, we get cash flow available to all providers of capital after operating expenses, or more precisely, cash flow to equity and debt holders after interest and taxes. Actually, let me think about this more carefully. EBITDA is before interest and taxes. If we subtract cash interest and cash taxes, we get: EBITDA - cash interest - cash taxes = (EBIT + D&A) - cash interest - cash taxes = EBIT - cash interest - cash taxes + D&A But EBIT - interest expense = EBT (approximately). And EBT - taxes = net income. So EBITDA - cash interest - cash taxes ≈ Net income + D&A + (interest expense - cash interest) + (tax expense - cash taxes) This is roughly "net income + D&A + deferred items" which is close to standard FFO. Actually, standard FFO from S&P is typically: FFO = Net income + D&A + deferred taxes + other non-cash items - after-tax interest expense Hmm, this is getting confusing with different formulations. Let me just use the formula as given in the instructions. The instructions explicitly state: FFO = Adjusted_EBITDA - cash_interest - cash_taxes So I'll follow this exactly. Using: - Adjusted_EBITDA = 1,506,546,000 - cash_interest = 123,524,000 (interest paid, gross) - cash_taxes = 363,996,000 FFO = 1,506,546,000 - 123,524,000 - 363,996,000 = 1,019,026,000 For Adjusted_Debt, let me also consider if I should use a different measure. The instructions say: Adjusted_Debt = (reported_debt + leases + pension_deficit + guarantees + hybrid_debt_portion + other_debt_like_items) - eligible_cash I've identified: - reported_debt = 7,249,032,000 (or 7,278,101,000 with derivatives) - leases = unknown, likely included in borrowings - pension_deficit = unknown, not clearly identified - guarantees = unknown - hybrid_debt_portion = unknown - other_debt_like_items = possibly derivatives (29,069,000) - eligible_cash = 794,824,000 Given limited information on leases, pensions, guarantees, and hybrids, I'll assume they're either not material or included in reported debt. **Adjusted_Debt = 7,249,032,000 - 794,824,000 = 6,454,208,000 EUR** Final calculation: FFO / Adjusted_Debt = 1,019,026,000 / 6,454,208,000 = 0.157886... ≈ **0.1579** Let me also verify with an alternative FFO calculation to see if this makes sense. Alternative: Use net interest (interest paid - interest received): FFO = 1,506,546,000 - (123,524,000 - 15,680,000) - 363,996,000 = 1,034,706,000 FFO / Adjusted_Debt = 1,034,706,000 / 6,454,208,000 = 0.1603 Or if we consider "Other Current Financial Assets" as eligible cash: Eligible cash = 794,824,000 + 752,505,000 = 1,547,329,000 Adjusted_Debt = 7,249,032,000 - 1,547,329,000 = 5,701,703,000 FFO / Adjusted_Debt = 1,019,026,000 / 5,701,703,000 = 0.1787 This range (0.1579 to 0.1787) is quite wide. I need to determine the most appropriate S&P-standard approach. For S&P's regulated utility methodology, they typically: 1. Use gross debt (not netting cash) for some measures, or net debt for others 2. Focus on "FFO to debt" as a core ratio 3. Use standard FFO definitions Looking at S&P's typical presentation for European utilities, they often report "FFO/adjusted debt" where: - FFO = EBITDA - cash interest - cash taxes (or similar) - Adjusted debt = total debt - cash and cash equivalents And "total debt" includes all borrowings and debt-like items. Given the formula in the instructions and standard practice, I'll use: - FFO with gross interest paid (as "cash_interest" most naturally means interest paid) - Adjusted_Debt with cash and cash equivalents netted (standard "net debt" approach) But I want to check one more thing: Should "Other Current Financial Assets" be considered as "eligible cash"? Looking at S&P's general methodology: "We deduct cash and liquid investments that we consider to be available to repay debt." "Current Financial Assets At Amortised Cost" of 752,505,000 - these are likely short-term deposits or loans. If they're truly liquid and available, S&P might consider them as part of "excess cash." However, without knowing the exact nature, and given that they're classified as "financial assets" rather than "cash equivalents," I'll be conservative and not include them. **Final answer: 0.1579** Actually, let me do one more verification. Looking at the company's credit profile, Red Eléctrica is a regulated Spanish transmission operator. S&P typically rates such companies in the BBB to A range. FFO/debt of around 15-16% would be consistent with a low BBB or high BB rating, which might be a bit low for this type of company. Let me check if my EBITDA calculation could be wrong. The company has "Other Work Performed By Entity And Capitalised" of 62,903,000. This is capitalized costs, which are not revenue but reduce expenses. In EBITDA calculation, should this be included? Actually, "Other Work Performed By Entity And Capitalised" is typically added to revenue or shown separately as income-like. In my reconstruction, I included it as positive. But is this correct? Looking at IFRS, "other work performed by the entity and capitalised" represents work the entity does for itself (e.g., construction of own assets) that is capitalised rather than expensed. This is not revenue from external customers but is recognized as income (offsetting the costs). For EBITDA purposes, this should be included as it's part of operating performance. Actually, let me reconsider. "Other Work Performed By Entity And Capitalised" of 62,903,000 - is this already included in revenue or separate? Looking at the P&L structure, it's listed after "Revenue" and before equity earnings, suggesting it's additional income. But actually, in standard IFRS presentation, "other own work capitalized" is often presented as a separate line item that reduces costs (shown as positive income). It's not revenue from external parties. For S&P EBITDA calculation, this should be included as it's part of operating cash flow generation. Let me verify my EBITDA one more time by looking at operating profit: Revenue + other income - operating costs = operating profit If I use a simpler approach: Operating profit + D&A = EBITDA = 961,554,000 + 544,992,000 = 1,506,546,000 This is correct. But wait - is "Profit Loss From Operating Activities" the same as "operating profit"? In IFRS, yes, this is typically operating profit before finance items and taxes. However, I need to check if this includes equity earnings. Looking at the P&L structure: - Revenue - Other Work Performed By Entity And Capitalised - Participacion En Beneficios De Sociedades Valoradas Por El Metodo De La Participacion (equity earnings) - ... various expenses ... - Profit Loss From Operating Activities So equity earnings of 50,405,000 are included in the items building up to operating profit. For S&P's purposes, is this appropriate? Equity earnings are non-cash (dividends are cash). However, they're part of operating performance for an infrastructure company with strategic investments. S&P typically includes equity earnings in EBITDA for utility companies, as these are part of the business model. Given all this, I'll stick with my calculation. One final check: Should I use average debt or year-end debt? S&P typically uses year-end debt for leverage ratios, or sometimes average. The instructions say "Adjusted_Debt" without specifying, so year-end is appropriate. Also, for FFO, should I use annual FFO or some average? Annual is standard. **Final calculation:** FFO / Adjusted_Debt = 1,019,026,000 / 6,454,208,000 = 0.157886... ≈ **0.1579** 0.1579