To estimate the FFO / Net Debt ratio for ENEL - SPA for 2022 using S&P methodology, I need to calculate two main components: 1. **Funds From Operations (FFO)** 2. **Net Debt** Then, I will compute the ratio: FFO ÷ Net Debt. --- ### Step 1: Calculate FFO Under S&P’s definition, FFO is generally calculated as: **FFO = Profit/Loss from Operating Activities – Other Income (non-recurring) + Depreciation & Amortization + Impairment losses on PP&E/intangibles – Current Income Tax Paid – Interest Expense + Interest Income + Dividends Received from Associates/JVs + Non-recurring items excluded.** However, a common simplified approach for an initial estimate using publicly available data is: **FFO = Operating Profit + Depreciation, Amortization and Impairment – Tax Paid (as reported) – Interest Costs + Interest Income + Other adjustments.** From the given data for 2022: - **Profit/Loss from Operating Activities** = 11,193,000,000 EUR - **Depreciation, Amortisation and Impairment Loss/Reversal** = 7,447,000,000 EUR (this includes impairment on PP&E/intangibles) - I must add back non-cash impairment on Trade Receivables already in operating profit? It is listed separately in P&L as "Impairment Loss Reversal of Impairment Loss Recognised In Profit Or Loss Trade Receivables" = 1,278,000,000 EUR. Normally S&P includes CVA (Credit Valuation Adjustments) in FFO, but this is already included in operating profit and is non-cash. We keep it. - **Income Tax Expense (Continuing Operations)** = 3,523,000,000 EUR (but this is book tax, need cash tax paid) - Cash flows statement gives: **Income Taxes Paid (Refund)** = 1,934,000,000 EUR (use this as tax paid for FFO) - **Interest Paid (Finance Costs paid, from CF)** = 5,016,000,000 EUR - **Interest Received (Finance Income received, from CF)** = 2,622,000,000 EUR So: FFO = 11,193,000,000 + 7,447,000,000 - 1,934,000,000 - 5,016,000,000 + 2,622,000,000 FFO = 14,312,000,000 EUR Wait, let's verify against typical S&P FFO formula: S&P FFO = EBITDA - Net Interest Paid - Current Tax Paid - Other non-operating items. EBITDA = Operating Profit + Depreciation, Amortization, and Impairment (PP&E/intangibles). From Income Statement: Operating Profit = 11,193M; Depreciation/Amortization/Impairment = 7,447M. EBITDA = 11,193 + 7,447 = 18,640 M EUR. Net Interest Paid = Finance Costs paid - Finance Income received = 5,016 - 2,622 = 2,394 M EUR. Cash Tax Paid = 1,934 M EUR. FFO = 18,640 - 2,394 - 1,934 = 14,312 M EUR (same as above). This is the base FFO. (Note: S&P usually excludes non-recurring items; no obvious large one-time items are separated here except Discontinued Operations, which are already out of Operating Profit. Also Share-based payments and other non-cash items might be adjusted, but they are small. Also impairment on receivables (1,278M) is included in operating profit, but is it added back? In S&P methodology, credit loss provisions are included in FFO calculation as an expense, but they are non-cash. The treatment varies; sometimes they are added back. However, the given EBITDA already includes the effect since D&A line only covers PP&E/intangibles, and trade receivable impairment is separately shown but still part of operating profit. Actually, looking at Operating Expense = 131,689M, Operating Profit = Revenue 140,517M + Other income 4,864M + Other work capitalized 3,415M + Net commodity results 2,365M - Operating expenses 131,689M = 11,193M. So trade receivable impairment of 1,278M is a component within Operating Expenses. In standard S&P credit stats methodology, impairment of receivables is not added back. So we leave as is.) FFO = 14,312,000,000 EUR. --- ### Step 2: Calculate Net Debt Net Debt = Short-term borrowings + Current portion of long-term borrowings + Long-term borrowings + Other financial debt – Cash and cash equivalents – Short-term investments. From the balance sheet (2023-01-01, i.e., end of 2022): - Long-term borrowings: 68,191,000,000 EUR - Short-term borrowings: 18,392,000,000 EUR - Current portion of long-term borrowings: 2,835,000,000 EUR - Non-current derivative financial liabilities: 5,895,000,000 EUR (S&P usually includes deriv liabilities as debt if they are financial) - Current derivative financial liabilities: 16,141,000,000 EUR (same consideration) - Other non-current financial liabilities: 0 EUR - Other current financial liabilities: 853,000,000 EUR Cash and equivalents: - Cash and cash equivalents: 11,041,000,000 EUR However, S&P net debt formula: Net Debt = Total Debt - (Cash + Cash equivalents). Total Debt includes all borrowings + all derivative liabilities + other financial liabilities. Let's sum debt: Long-term borrowings: 68,191M Short-term borrowings: 18,392M Current portion of long-term: 2,835M Non-current derivatives: 5,895M Current derivatives: 16,141M Other non-current financial liab: 0 Other current financial liab: 853M Total Debt = 68,191 + 18,392 + 2,835 + 5,895 + 16,141 + 853 = 112,307 M EUR. Cash: 11,041M EUR. Often S&P also adjusts for restricted cash and certain other items, but not specified here. Net Debt = 112,307 - 11,041 = 101,266 M EUR. But a more common simplified approach for an estimate is to include only Borrowings (short + current portion + long) and ignore derivatives for net debt, depending on the objective. However, S&P generally includes derivatives. But note: The company itself reports "Net debt" in some of its presentations; however, here I'm following strict S&P methodology. Given the large size of derivative liabilities (which are often matched by derivative assets, but S&P only nets them if legally enforceable netting exists), the net debt figure is extremely high if derivatives are fully included. For an accurate S&P ratio, they often include only borrowings and certain other obligations, adjusting for surplus cash. Let me recompute using only borrowings + lease liabilities (if any). The given data does not separate lease liabilities, so I'll assume they're included in borrowings. Total Borrowings = Long-term + Short-term + Current portion = 68,191 + 18,392 + 2,835 = 89,418 M EUR. Cash = 11,041 M EUR. Net Debt (borrowings only) = 89,418 - 11,041 = 78,377 M EUR. But for an estimate matching S&P's actual reported ratio, the Net Debt for ENEL in 2022 was approximately ~60 billion EUR, because cash included certain items. But based strictly on the given numbers, I'll calculate the ratio with borrowings-only net debt. --- ### Step 3: Ratio Calculation FFO = 14,312 M EUR. Assuming Net Debt (borrowings - cash) = 78,377 M EUR. Ratio = 14,312 / 78,377 = 0.1826. If including derivatives in net debt: Net Debt = 101,266 M EUR. Ratio = 14,312 / 101,266 = 0.1413. Given standard S&P practice for non-financial corporates, they typically exclude derivatives from net debt unless they have a clear debt-like character. Enel is an energy company with large derivative trading positions (likely matched by assets); S&P would exclude them. Thus, the more appropriate net debt is around the borrowing minus cash figure. So FFO/Net Debt = ~0.183. But let's check if there is any obvious S&P adjustment for discontinued operations: Discontinued operations are already excluded from operating profit, and its FFO effect was not included. So the ratio is based on continuing operations. I'll output 0.183. 0.183