I'll work through this step-by-step, identifying the relevant industry and calculating the S&P-adjusted FFO-to-debt ratio for IBERDROLA SA. ## Step 1: Identify the Relevant Industry IBERDROLA SA is a major Spanish electric utility company. Looking at the provided methodologies: - **Regulated Utilities**: For electricity generation, transmission, and distribution - **Unregulated Power And Gas**: For merchant power, renewables, and competitive retail IBERDROLA operates in both regulated (networks, distribution) and unregulated (generation, renewables, retail) activities. Given its significant presence in both areas and its description as a utility with regulated and competitive operations, I'll apply the **Regulated Utilities** methodology as the primary framework, with awareness that it also has unregulated power activities. However, for a utility with significant regulated operations, the regulated utilities framework is most appropriate. ## Step 2: Estimate Adjusted_EBITDA From the financial data: - **EBITDA (reported as "Beneficio Bruto De Explotacion Ebitda")**: 13,228,000,000 EUR for 2022 Now I need to check for adjustments: **Leases adjustment**: I need to add back operating lease expenses or capitalize operating leases. Under IFRS 16, leases are already capitalized on balance sheet. Looking at the data: - Right-of-use assets: 2,370,000,000 EUR (2023-01-01) and 2,260,000,000 EUR (2022-01-01) - Current lease liabilities: 151,000,000 EUR (2023-01-01) and 158,000,000 EUR (2022-01-01) - Noncurrent lease liabilities: 2,287,000,000 EUR (2023-01-01) and 2,253,000,000 EUR (2022-01-01) Total lease liabilities at 2022-01-01: 158,000,000 + 2,253,000,000 = 2,411,000,000 EUR Total lease liabilities at 2023-01-01: 151,000,000 + 2,287,000,000 = 2,438,000,000 EUR Since IFRS 16 is already applied, leases are capitalized. The EBITDA already includes the depreciation of right-of-use assets rather than operating lease expenses. For S&P purposes, we typically add back the lease depreciation and subtract lease interest. However, looking at the EBITDA figure, it appears to already be calculated under IFRS 16. Actually, let me reconsider: S&P typically makes lease adjustments by adding back lease-related depreciation to EBITDA. But in this case, since IFRS 16 is applied, the reported EBITDA likely already reflects the treatment where lease expenses are split into depreciation and interest. Let me check: "Depreciation Amortisation And Impairment Loss Reversal Of Impairment Loss Recognised In Profit Or Loss" = 4,774,000,000 EUR This includes depreciation of right-of-use assets. For S&P adjusted EBITDA, we typically add back lease depreciation to get a "pre-IFRS 16" like EBITDA, then subtract lease payments. However, a simpler approach used by S&P is to use reported EBITDA and make specific adjustments. Let me check if there are other items. **Nonrecurring items**: Looking at "Other Gains Losses" = 911,000,000 EUR (positive). This could include nonrecurring gains. From the cash flow statement, I can identify: - "Adjustments For Finance Income Cost" = 1,842,000,000 EUR (this is adding back non-cash finance costs in CFO reconciliation) Let me look more carefully at what's in EBITDA. The EBITDA of 13,228,000,000 EUR is already a measure before depreciation, interest, and taxes. For regulated utilities, S&P typically does not make significant EBITDA adjustments unless there are specific items. The main adjustments would be: - Nonrecurring items - Lease adjustments if needed - Joint venture proportional EBITDA Looking at "Share Of Other Comprehensive Income Of Associates And Joint Ventures Accounted For Using Equity Method" = 146,000,000 EUR - this is OCI, not profit share. For joint ventures, we need to look at equity method investments. "Investments In Associates Accounted For Using Equity Method" = 857,000,000 EUR (2023-01-01) and 1,058,000,000 EUR (2022-01-01). The "Adjustments For Undistributed Profits Of Investments Accounted For Using Equity Method" = -146,000,000 EUR in cash flow statement (negative means undistributed profits were subtracted to get to CFO, meaning we need to add back for FFO). Actually, let me re-read: "Adjustments For Undistributed Profits Of Investments Accounted For Using Equity Method" = -146,000,000 EUR. In the cash flow statement, this is an adjustment to profit. Negative means we subtract undistributed profits. This means the net income includes equity method income that wasn't received as cash. For S&P FFO calculation, we typically start from net income and add back non-cash items, or start from EBITDA and subtract cash interest and cash taxes. Let me use the standard S&P approach for regulated utilities: **Adjusted_EBITDA = Reported EBITDA + lease adjustments + nonrecurring losses - nonrecurring gains ± other adjustments** For IFRS 16, S&P Global Ratings typically adjusts by: - Adding back lease depreciation (included in D&A) - Subtracting lease payments (reported in financing or operating) From the cash flow statement: "Pago De Principal De Pasivos Financieros Por Arrendamiento" = -175,000,000 EUR (lease principal payments, financing) "Intereses Pagados Excluidos Intereses Capitalizados De Pasivos Financieros Por Arrendamiento" = -61,000,000 EUR (lease interest payments) Total lease payments = 175,000,000 + 61,000,000 = 236,000,000 EUR Lease depreciation would be part of the 4,774,000,000 EUR D&A. We need to estimate it. The right-of-use assets were 2,260,000,000 at start and 2,370,000 at end. Average = 2,315,000,000. With typical lease terms of 5-10 years, depreciation might be around 230-460 million. Let's roughly estimate based on lease liability reduction and interest. Actually, for a cleaner approach, let me use the S&P methodology more directly. S&P typically calculates: For companies with capitalized leases (IFRS 16): - Use reported EBITDA (which excludes lease depreciation and lease interest, but includes other depreciation) - For debt, include lease liabilities - For FFO, use standard formula Actually, reported EBITDA under IFRS 16 already has lease depreciation in the D&A that is added back. So EBITDA is higher than it would be under operating lease treatment. The lease interest is below EBITDA, so it doesn't affect EBITDA. For S&P purposes, when starting from reported EBITDA under IFRS 16, we need to consider if adjustments are needed. S&P's practice has evolved, but they often use a "lease-adjusted EBITDA" that approximates pre-IFRS 16 treatment. However, looking at the complexity and the data available, let me use a practical approach: **Adjusted_EBITDA = 13,228,000,000 EUR** (reported EBITDA) I'll make minimal adjustments unless clearly needed. The "Other Gains Losses" of 911,000,000 EUR might include nonrecurring items. Let me check if this is above the line (in EBITDA) or below. Looking at the structure: Gross Profit → Employee Benefits → Other Work Capitalized → Gastos De Servicios → Other Gains Losses → "Gasto Operativo Neto" (net operating expense) → EBITDA Actually, "Beneficio Bruto De Explotacion Ebitda" comes after "Gasto Operativo Neto" and before depreciation. So "Other Gains Losses" is already in EBITDA. Are these nonrecurring? "Other Gains Losses" could include asset sales, impairments, etc. Without more detail, I'll treat reported EBITDA as the base. For regulated utilities, S&P may also adjust for pension items. Looking at: - Noncurrent Provisions For Employee Benefits: 1,226,000,000 EUR (2023-01-01) and 1,592,000,000 EUR (2022-01-01) - Current Provisions For Employee Benefits: 42,000,000 EUR (2023-01-01) and 27,000,000 EUR (2022-01-01) Total pension provisions decreased from 1,619,000,000 to 1,268,000,000. This could indicate pension contributions or actuarial changes. The cash flow has "Pagos Por Gastos De Personal Activados" = -847,000,000 EUR (capitalized personnel costs, negative in investing = outflow). And "Other Work Performed By Entity And Capitalised" = 847,000,000 EUR (positive in P&L, meaning capitalized costs). For S&P, capitalized costs are often treated as cash expenses, reducing EBITDA. But this is complex. Let me take a more standard approach and use reported EBITDA with minimal adjustments: **Adjusted_EBITDA = 13,228,000,000 EUR** I'll add back any clearly nonrecurring losses or subtract nonrecurring gains if identifiable. The "Other Gains Losses" is 911,000,000 EUR positive. If this includes significant nonrecurring gains, I should subtract. However, without clear identification of what's nonrecurring, I'll use reported EBITDA. Actually, let me reconsider: S&P typically adjusts for "other gains/losses" if they're non-operating or nonrecurring. For utilities, items like asset sales, impairment reversals, etc. would be adjusted. Looking at the magnitude, 911 million on EBITDA of 13,228 million is about 6.9%. This could be significant. Let me check if there are specific nonrecurring items. The "Other Gains Losses" line item is quite generic. In the absence of more detail, I'll make a conservative assumption that part of this may be nonrecurring. However, for this exercise, let me proceed with **Adjusted_EBITDA = 13,228,000,000 EUR** as the base, noting that in practice S&P might adjust further. Wait - I need to re-examine. The S&P methodology mentions for regulated utilities: "Where substantial seasonal working capital requirements...distort leverage measures, we adjust inventory and debt balances by netting the value of inventory against outstanding short-term borrowings." This doesn't affect EBITDA. Also: "We deconsolidate securitized debt (and associated revenue and expense) that has been accorded specialized recovery provisions." No evidence of this in the data. For the EBITDA adjustment, let me also consider if lease adjustments are needed. Under IFRS 16, EBITDA includes add-back of all depreciation except lease depreciation? No - EBITDA adds back all depreciation including lease depreciation. So EBITDA is actually HIGHER under IFRS 16 than under operating lease treatment. S&P's typical adjustment for IFRS 16 leases in EBITDA: - They may subtract lease payments from EBITDA to get a "lease-adjusted" figure comparable to pre-IFRS 16 - Or they may add back lease depreciation and subtract lease interest to get back to operating lease EBITDA Actually, the standard S&P approach for IFRS 16 is: - Reported EBITDA already includes add-back of lease depreciation - For FFO, they use: FFO = Funds from operations before working capital changes (from cash flow statement) - cash interest - cash taxes, or - FFO = EBITDA - cash interest - cash taxes (with adjustments) Let me look at the cash flow statement more carefully: "Cash Flows From Used In Operating Activities" = 10,443,000,000 EUR This is CFO before working capital or after? Looking at the components: - Start from Profit Loss From Operating Activities = 7,984,000,000 EUR - Add back: Depreciation Amortisation... = 4,774,000,000 EUR - Various working capital and other adjustments - Result: CFO = 10,443,000,000 EUR For S&P FFO, we typically use: FFO = Net income + depreciation + deferred taxes + other non-cash items - working capital changes Or more commonly: FFO = EBITDA - cash interest - cash taxes Let me calculate using the second approach, which requires identifying cash interest and cash taxes. From the cash flow statement: - "Income Taxes Paid Classified As Operating Activities" = 1,055,000,000 EUR (this is cash taxes) - For cash interest, I need to look at financing activities and interest paid From financing activities: - "Intereses Pagados Excluidos Intereses Capitalizados De Deudas Con Entidades De Credito YObligaciones UOtros Valores Negociables" = -1,495,000,000 EUR - "Intereses Pagados Excluidos Intereses Capitalizados De Pasivos Financieros Por Arrendamiento" = -61,000,000 EUR - "Intereses Pagados De Obligaciones Perpetuas Subordinadas" = -169,000,000 EUR Also in investing activities: - "Interest Paid Classified As Investing Activities" = -189,000,000 EUR (capitalized interest) Total interest paid = 1,495,000,000 + 61,000,000 + 169,000,000 + 189,000,000 = 1,914,000,000 EUR Wait, the 189,000,000 is "Interest Paid Classified As Investing Activities" - this is likely capitalized interest on construction. Let me also check if there's interest received: - "Interest Received Classified As Investing Activities" = 172,000,000 EUR - "Finance Income" = 1,204,000,000 EUR (P&L) For cash interest paid (net), I should use the actual cash outflows. Actually, for S&P FFO = EBITDA - cash interest - cash taxes, "cash interest" means interest actually paid, not accrued. From cash flow statement, interest paid: - 1,495,000,000 (on bank loans and bonds) - 61,000,000 (on leases) - 169,000,000 (on perpetual subordinated bonds) - 189,000,000 (capitalized interest, investing activities) Total cash interest paid = 1,914,000,000 EUR But wait - capitalized interest is typically not subtracted in FFO because it's not an expense (it's capitalized). However, it is a cash outflow. S&P treatment varies, but typically FFO = EBITDA - cash interest expense paid - cash taxes. Let me use: cash interest = 1,495,000,000 + 61,000,000 + 169,000,000 = 1,725,000,000 EUR (excluding capitalized interest as it's not an expense, though it is a cash flow) Actually, looking more carefully: capitalized interest is part of investing cash flow, not operating. For FFO calculation, we typically focus on operating cash flows. The capitalized interest is a financing/investing item that becomes part of PP&E. Let me use a cleaner approach from S&P methodology: **FFO = Funds from operations before working capital changes** From the cash flow reconciliation, this would be: - Profit before tax: 6,292,000,000 - Add back depreciation: 4,774,000,000 - Add back finance costs less finance income: 3,042,000,000 - 1,204,000,000 = 1,838,000,000 - Other non-cash items - Less: taxes paid Actually, let me use the direct S&P formula: **FFO = EBITDA - cash interest - cash taxes** Where: - EBITDA = 13,228,000,000 - Cash interest = interest actually paid (from financing activities) = 1,495,000,000 + 61,000,000 + 169,000,000 = 1,725,000,000 - Cash taxes = 1,055,000,000 But wait - the 169,000,000 is "Intereses Pagados De Obligaciones Perpetuas Subordinadas" - interest paid on perpetual subordinated bonds. These are hybrid instruments. S&P may treat these differently (sometimes as equity, sometimes as debt). Also, I need to check if the EBITDA is already after other gains/losses. Let me trace through the P&L: Revenue: 53,949,000,000 Raw Materials: -33,750,000,000 Gross Profit: 20,199,000,000 Employee Benefits: -3,365,000,000 Other Work Capitalized: +847,000,000 Gastos De Servicios: -3,602,000,000 (expense, so negative) Other Gains Losses: +911,000,000 Gasto Operativo Neto: -5,209,000,000 (net operating expense) Tax Expense Other Than Income Tax: -1,762,000,000 EBITDA: 13,228,000,000 Wait, let me recalculate: 20,199 - 3,365 + 847 - 3,602 + 911 = 14,990? That doesn't equal 13,228. Let me re-read: "Gastos De Servicios" 2022-01-01 - 2023-01-01: -3602000000 EUR. The negative sign means it's an expense. "Gasto Operativo Neto" 2022-01-01 - 2023-01-01: -5209000000 EUR. This is net operating expense. So: Gross Profit 20,199 + adjustments = EBITDA 13,228. 20,199 - 3,365 + 847 - 3,602 + 911 - 1,762 = 13,228? Let me check: 20,199 - 3,365 = 16,834; +847 = 17,681; -3,602 = 14,079; +911 = 14,990; -1,762 = 13,228. Yes! So EBITDA includes: Employee benefits, capitalized work, service expenses, other gains/losses, and other tax expenses. Now for FFO, using EBITDA - cash interest - cash taxes: But I need to be careful about "cash interest" - this should be interest on debt, not including hybrid instruments if S&P treats them as equity. Perpetual subordinated bonds are hybrid instruments. S&P typically includes the debt-like portion in adjusted debt. The interest paid on these might still be treated as interest for FFO purposes, or as dividends if the instrument is treated as equity. Looking at the equity section: "Instrumentos De Capital Con Caracteristicas De Pasivo Financiero" - capital instruments with debt characteristics. These are hybrid instruments. Noncurrent: 576,000,000 EUR (2023-01-01), 525,000,000 EUR (2022-01-01) Current: 87,000,000 EUR (2023-01-01), 100,000,000 EUR (2022-01-01) Total hybrid debt: 663,000,000 EUR (2023-01-01), 625,000,000 EUR (2022-01-01) S&P typically treats 50% of hybrid instruments as debt and 50% as equity for investment-grade companies, or may use a different split based on features. For interest on hybrids: if treated as 50% debt, then 50% of interest is "cash interest" for FFO. Interest on perpetual subordinated bonds paid: 169,000,000 EUR. If 50% treated as debt, then 84,500,000 is cash interest. But this is getting complex. Let me use a simpler approach that aligns with standard S&P practice for utilities: **FFO = Cash Flow from Operations before working capital changes - cash interest - cash taxes? No, that's double counting.** Actually, standard S&P FFO calculation: FFO = Net income from continuing operations + depreciation + deferred income taxes + other non-cash items Or: FFO = EBITDA - cash interest - cash taxes + dividends from equity investments ± other items Let me use: **FFO = EBITDA - cash interest - cash taxes** With: - EBITDA = 13,228,000,000 - Cash interest on debt (excluding hybrids if treated as equity, and excluding lease interest if leases treated separately): This needs more careful analysis Actually, for utilities with IFRS 16, S&P typically: - Includes lease liabilities in adjusted debt - For FFO, uses EBITDA before lease depreciation (i.e., reported EBITDA under IFRS 16 is fine) and subtracts cash interest on debt and cash taxes Lease payments are not subtracted from EBITDA for FFO; instead, the lease liability service is part of debt service coverage ratios, not FFO. Let me recalculate cash interest more carefully: From P&L: Finance Costs = 3,042,000,000 EUR This includes: interest on debt, lease interest, hybrid "dividends"/interest, other finance costs. From cash flows, interest paid: - On bank loans and bonds: 1,495,000,000 - On leases: 61,000,000 - On perpetual subordinated bonds: 169,000,000 - Capitalized interest (investing): 189,000,000 Total cash interest paid = 1,914,000,000 But finance costs in P&L = 3,042,000,000. Difference includes: accrued but not paid, amortization of fees/premiums, lease interest (part of which may be non-cash or differently classified), foreign exchange, fair value changes, etc. For S&P FFO = EBITDA - cash interest - cash taxes, "cash interest" should be actual cash paid. However, looking at standard S&P methodology more carefully, they typically use: - FFO = Funds from operations before working capital changes (from cash flow statement, or calculated) From the cash flow statement, "Cash Flows From Used In Operating Activities" = 10,443,000,000 EUR. This already includes working capital changes and other items. To get FFO (before working capital), I need to add back working capital changes to CFO, or start from net income and add back non-cash items. Let me try: FFO = Net income + depreciation + deferred taxes + other non-cash - equity earnings + dividends from equity investments Net income (Profit Loss) = 5,060,000,000 Add: Depreciation = 4,774,000,000 Add: Deferred tax change? Need to calculate. Deferred tax assets: 5,917,000,000 (2022-01-01) to 6,321,000,000 (2023-01-01) = increase 404,000,000 Deferred tax liabilities: 11,364,000,000 (2022-01-01) to 11,682,000,000 (2023-01-01) = increase 318,000,000 Net deferred tax liability increase = 318,000,000 - 404,000,000 = -86,000,000 (asset increased more, so this is a use or negative benefit) Actually, for FFO, we add back the deferred tax expense (positive expense) or subtract deferred tax benefit. The income tax expense in P&L = 1,161,000,000. Cash taxes paid = 1,055,000,000. Difference = 106,000,000. This could be deferred tax expense. Other non-cash items to add back: - "Adjustments For Undistributed Profits Of Investments Accounted For Using Equity Method" = -146,000,000 (this means we subtracted this in CFO reconciliation, so add back for FFO? Actually, this is already in net income as equity earnings, so we subtract them to get to cash. For FFO, we want to exclude equity earnings and include dividends received.) Dividends received = 67,000,000 (from operating activities) + ? (from investing) Let me try a different approach. The standard S&P formula for FFO when starting from EBITDA: **FFO = EBITDA - Cash Interest - Cash Taxes** Where: - EBITDA = 13,228,000,000 - Cash Interest = actual interest paid on debt (not leases, not hybrids if treated as equity) - Cash Taxes = actual taxes paid For Cash Interest, I need to identify what's on debt vs. leases vs. hybrids. From cash flow: - Interest on bank loans and bonds: 1,495,000,000 - Interest on leases: 61,000,000 - Interest on perpetual subordinated bonds: 169,000,000 If S&P treats leases as debt-like and includes in adjusted debt, then lease interest is part of "cash interest" for FFO-to-debt calculations. For hybrids, if S&P treats 50% as debt, then 50% of hybrid interest is cash interest. But actually, for the FFO/Debt ratio, S&P typically uses: - FFO = EBITDA - cash interest - cash taxes - Where cash interest includes all interest on debt and debt-like obligations (including leases, including hybrid portion treated as debt) This is getting complex with many judgments. Let me try to use a more direct approach from the cash flow data. Actually, I realize I should look at this differently. The S&P methodology says for regulated utilities, FFO is typically calculated as: From "Corporate Methodology: Ratios And Adjustments" (referenced but not fully provided), the standard formula is: FFO = Funds from operations before working capital changes This equals: Net income + depreciation + amortization + deferred income taxes + other non-cash items - gain/loss on asset sales + other adjustments Let me calculate from the cash flow statement more carefully. The reconciliation from net income to CFO is: Profit Loss From Operating Activities: 7,984,000,000 + Depreciation Amortisation...: 4,774,000,000 + Correccion Valorativa De Deudores...: -470,000,000 (impairment/reversal) + Adjustments For Undistributed Profits...: -146,000,000 + Adjustments For Finance Income Cost: 1,842,000,000 (this is non-cash finance cost, or difference between P&L and cash) + Adjustments For Decrease Increase In Trade And Other Receivables: -1,701,000,000 + Adjustments For Decrease Increase In Inventories: 521,000,000 + Adjustments For Increase Decrease In Trade And Other Payables: 44,000,000 + Pagos De Provisiones: -512,000,000 - Income Taxes Paid: -1,055,000,000 + Dividends Received: 67,000,000 = Cash Flows From Operating Activities: 10,443,000,000 Wait, let me check: 7,984 + 4,774 - 470 - 146 + 1,842 - 1,701 + 521 + 44 - 512 - 1,055 + 67 = ? 7,984 + 4,774 = 12,758 - 470 = 12,288 - 146 = 12,142 + 1,842 = 13,984 - 1,701 = 12,283 + 521 = 12,804 + 44 = 12,848 - 512 = 12,336 - 1,055 = 11,281 + 67 = 11,348 This doesn't equal 10,443. I'm missing something. Let me re-check the signs. Actually, looking at the data format: "Adjustments For Finance Income Cost" 2022-01-01 - 2023-01-01: 1842000000 EUR. This is positive, meaning add back. But wait - "Finance Income Cost" in P&L is -1,838,000,000 (negative, meaning net cost). The adjustment of +1,842,000,000 is adding back the non-cash portion or reconciling to cash. Hmm, let me look at this more carefully. The P&L has "Finance Income Cost" = -1,838,000,000. This is the net finance cost (expense). In cash flow, "Adjustments For Finance Income Cost" = +1,842,000,000. This suggests they're adding back the non-cash finance cost, or the difference between accrual and cash. Actually, I think I need to re-read. "Adjustments For Finance Income Cost" likely means: adjustment to reconcile from net income to CFO, which is "add back non-cash finance costs" or "subtract non-cash finance income". If finance cost in P&L is 1,838 (expense, so negative for profit), and cash paid is different, the adjustment brings it to cash basis. Total interest paid was 1,914,000,000. Finance cost in P&L is 1,838,000,000. Difference is 76,000,000. But adjustment is 1,842,000,000. This doesn't match. Wait - "Finance Income Cost" is -1,838,000,000 (net). Finance income is 1,204,000,000, finance costs are 3,042,000,000. Net = 1,204 - 3,042 = -1,838. Adjustment of 1,842,000,000 is roughly the net finance cost (1,838) plus a small amount. This suggests they're adding back the entire net finance cost to get to pre-finance measure, then adjusting for actual cash flows. Actually, I think the cash flow statement starts from "Profit Loss From Operating Activities" (not net income), which is before finance costs and taxes. So 7,984,000,000 is EBIT. Then: 7,984 + 4,774 (D&A) - 470 (receivables impairment) - 146 (equity earnings) + 1,842 (finance cost adjustment) ... But 7,984 already includes finance income/cost? No, "Profit Loss From Operating Activities" is EBIT, so before finance and taxes. Then adding 1,842 for finance cost adjustment seems odd. Unless this is adding back non-cash finance items to get to a cash-based measure before working capital. Let me try yet another approach. For S&P FFO, I'll use the standard definition: **FFO = Net income + Depreciation + Deferred taxes + Other non-cash - Gain on sales + Equity earnings - Dividends from equity investments** Or simpler: **FFO = EBITDA - Cash interest - Cash taxes** Let me use this with: - EBITDA = 13,228,000,000 - Cash interest = interest paid on debt instruments (excluding leases if treated separately, excluding hybrids if treated as equity) - Cash taxes = 1,055,000,000 For cash interest, I'll use: 1,495,000,000 (bank/bond interest) + 169,000,000 (hybrid interest, if treated as debt) = 1,664,000,000. Or excluding hybrids: 1,495,000,000. But wait - I need to check if the 1,495,000,000 includes or excludes capitalized interest. The line says "Intereses Pagados Excluidos Intereses Capitalizados" = interest paid EXCLUDING capitalized interest. So this is cash interest expensed. Capitalized interest of 189,000,000 is in investing activities. This is not an expense, so not in EBITDA or EBIT. For S&P FFO, cash interest should include all cash paid for interest, whether expensed or capitalized? Typically no - capitalized interest is not subtracted from EBITDA because it's not an expense. But it is a cash outflow. However, for FFO/Debt, S&P typically uses cash interest paid on debt (expensed), not capitalized. Let me use: Cash interest = 1,495,000,000 + 61,000,000 (lease interest) + 169,000,000 (hybrid) = 1,725,000,000. But if leases and hybrids are treated as debt-like, their interest is part of debt service. Actually, for the ratio FFO/Debt, the numerator FFO should be comparable to the denominator debt. If debt includes leases and hybrids, then FFO should subtract their service costs. Standard approach: FFO = EBITDA - cash interest on all debt (including capitalized leases, hybrid portion) - cash taxes. Let me use: Cash interest = 1,495,000,000 + 61,000,000 + 169,000,000 = 1,725,000,000 (excluding capitalized interest as it's not an expense) FFO = 13,228,000,000 - 1,725,000,000 - 1,055,000,000 = 10,448,000,000 Hmm, this is very close to CFO of 10,443,000,000. The difference is 5,000,000, which is likely rounding or minor items. Actually, this makes sense! CFO includes working capital changes and other items, while FFO = EBITDA - cash interest - cash taxes is before working capital changes. Wait, let me verify: 13,228 - 1,725 - 1,055 = 10,448. But CFO is 10,443. Difference of 5 million is small, likely due to my treatment of interest or other items. Actually, I think the correct cash interest for this formula should include capitalized interest too, since it's a cash outflow related to debt. Let me add 189,000,000: 1,725 + 189 = 1,914. Then FFO = 13,228 - 1,914 - 1,055 = 10,259. This is further from CFO. Or, if I exclude lease and hybrid interest: 1,495 + 189 = 1,684. FFO = 13,228 - 1,684 - 1,055 = 10,489. Also not matching. The closest is 10,448 vs 10,443. The 5 million difference could be due to rounding or treatment of specific items. Let me use **FFO = 10,443,000,000 EUR** (CFO before working capital changes, approximated by actual CFO adjusted for working capital, or directly from the EBITDA formula). Actually, I realize that CFO = 10,443 includes working capital changes. So FFO (before working capital) should be higher or lower depending on working capital change. From the reconciliation: working capital changes include: - Receivables: -1,701,000,000 (use, negative for cash) - Inventories: +521,000,000 (source, positive) - Payables: +44,000,000 (source, positive) - Provisions payments: -512,000,000 (use, negative - this is more like a cash expense) Net working capital change = -1,701 + 521 + 44 - 512 = -1,648,000,000 So FFO (before working capital) = CFO - working capital changes = 10,443 - (-1,648) = 12,091? No wait, if working capital change is negative (use), then FFO = CFO + |working capital use| = 10,443 + 1,648 = 12,091? That doesn't seem right. Let me think again. CFO = Net income + non-cash items - working capital uses + working capital sources. If working capital change is negative (more use than source), this reduces CFO relative to FFO. So FFO = CFO - (working capital sources - uses) = CFO + (uses - sources) = CFO + 1,648 = 12,091? But my EBITDA formula gave 10,448. These don't match. Something is wrong. Let me recalculate working capital from the cash flow: - Adjustments For Decrease Increase In Trade And Other Receivables: -1,701,000,000. This means receivables increased, so cash used. In CFO reconciliation, this is subtracted. - Adjustments For Decrease Increase In Inventories: +521,000,000. This means inventories decreased, so cash provided. Added in reconciliation. - Adjustments For Increase Decrease In Trade And Other Payables: +44,000,000. Payables increased, cash provided. Added. - Pagos De Provisiones: -512,000,000. Provisions paid, cash used. Subtracted. Total of these in reconciliation: -1,701 + 521 + 44 - 512 = -1,648,000,000. These are adjustments to get from accrual to cash. So CFO = EBIT + D&A + other non-cash + (-1,648) = 7,984 + 4,774 + other items - 1,648 + ... Actually, let me just use the full reconciliation: 7,984 (EBIT) + 4,774 (D&A) - 470 (receivables impairment, already in EBIT? No, this is added back if it was in EBIT) - 146 (equity earnings, subtracted because not cash) + 1,842 (finance cost adjustment) - 1,701 (receivables increase) + 521 (inventory decrease) + 44 (payables increase) - 512 (provisions paid) - 1,055 (taxes paid) + 67 (dividends received) = 10,443 Let me verify: 7,984 + 4,774 = 12,758; -470 = 12,288; -146 = 12,142; +1,842 = 13,984; -1,701 = 12,283; +521 = 12,804; +44 = 12,848; -512 = 12,336; -1,055 = 11,281; +67 = 11,348. Still not 10,443. I'm off by 905,000,000. Let me check if I missed something. Looking back at the data, I see "Other Work Performed By Entity And Capitalised" = 847,000,000. This is in P&L as positive (reducing expenses). And "Pagos Por Gastos De Personal Activados" = -847,000,000 in investing (cash outflow for capitalized costs). Also "Subvenciones Aplicadas YOtros Ingresos Diferidos" = -304,000,000. This is grants applied and deferred income. I think the issue is that my EBITDA of 13,228 is not the same as the starting point for CFO. The CFO starts from "Profit Loss From Operating Activities" = 7,984, which is EBIT, not EBITDA. Actually, "Profit Loss From Operating Activities" is EBIT = 7,984. Then add D&A = 4,774 to get EBITDA = 12,758? But reported EBITDA is 13,228. Difference is 470. Ah! The "Correccion Valorativa De Deudores Comerciales YActivos De Contrato" = -470,000,000. This is impairment of receivables and contract assets. This is likely included in EBITDA (as part of operating expenses) but then added back in D&A section? Or it's a non-cash item in EBIT. Actually, looking at EBIT to EBITDA: EBIT 7,984 + D&A 4,774 = 12,758. But EBITDA is 13,228. Difference = 470. This matches the "Correccion Valorativa" of -470 (impairment, expense in EBIT, add back for EBITDA). So EBITDA = EBIT + D&A + impairment = 7,984 + 4,774 + 470 = 13,228. Yes! Now for FFO (before working capital), I should start from EBITDA and subtract cash interest and cash taxes, but also adjust for other items that are in EBITDA but not in FFO. Actually, standard S&P FFO: FFO = EBITDA - Cash Interest - Cash Taxes This assumes EBITDA is a clean measure of operating cash flow before financing and taxes. But EBITDA includes non-cash items and excludes cash items that aren't in EBIT. For a cleaner approach, let me use: FFO = EBIT + D&A - Cash Interest - Cash Taxes + other non-cash in EBIT - other cash not in EBIT = 7,984 + 4,774 - Cash Interest - Cash Taxes + 470 (impairment, non-cash) - ... This is getting messy. Let me try yet another approach: use the cash flow statement to derive FFO. From cash flow statement, FFO (before working capital) = CFO + working capital changes + other non-operating items in CFO. CFO = 10,443 Working capital and other operating adjustments (excluding D&A and non-cash items already in EBIT): - Receivables increase: -1,701 (use, so added to get FFO) - Inventory decrease: +521 (source, so subtracted to get FFO) - Payables increase: +44 (source, so subtracted) - Provisions paid: -512 (use, so added) - Taxes paid: -1,055 (expense, so added) - Dividends received: +67 (income, so subtracted) Wait, this is getting confusing with signs. Let me think of it as: CFO = FFO + Working capital changes + Other cash-accrual differences FFO = CFO - Working capital changes - Other cash-accrual differences From the reconciliation, items that are "accrual to cash" adjustments: - Correccion Valorativa: -470 (non-cash expense, so FFO = CFO + 470? No, this is already in EBIT) - Undistributed profits: -146 (non-cash income, so FFO = CFO - 146? Or +146 to remove it) - Finance income cost adjustment: +1,842 (non-cash or reconciling finance items) - Receivables: -1,701 (working capital) - Inventories: +521 (working capital) - Payables: +44 (working capital) - Provisions paid: -512 (this is cash payment, not accrual change; it's a use) - Taxes paid: -1,055 (cash tax, not accrual) - Dividends received: +67 (cash, not accrual income) Hmm, provisions paid is cash payment of provisions, not a working capital change in the traditional sense. It's more like a cash expense. Let me try: FFO = CFO + Increase in receivables - Decrease in inventory - Increase in payables + Provisions paid + Taxes paid - Dividends received + ... = 10,443 + 1,701 - 521 - 44 + 512 + 1,055 - 67 = 13,079 Then FFO = 13,079? But this should be close to EBITDA = 13,228. Difference is 149, which could be other items. Actually, I think the issue is that I'm double-counting or mis-signing. Let me be more careful. Standard definition: FFO = Cash flow from operations BEFORE changes in working capital. From the cash flow reconciliation, if we start from Net Income and add back non-cash items, we get FFO. But here we start from EBIT. Let me construct FFO from EBIT: - EBIT: 7,984 - Add: D&A: 4,774 - Add: Impairment (Correccion Valorativa): 470 - Less: Equity earnings (undistributed): 146 - Add: Finance cost (non-cash or accrued): 1,842? No, this is confusing. Actually, "Adjustments For Finance Income Cost" of 1,842 is likely: finance cost accrued in EBIT (1,838) minus finance income accrued... but EBIT is before finance costs! Wait, "Profit Loss From Operating Activities" = EBIT = 7,984. This is BEFORE finance costs and taxes. So finance costs are not in EBIT. Then why is there "Adjustments For Finance Income Cost" in the CFO reconciliation? This must be for items that were in EBIT but relate to finance... or it's an adjustment for the finance costs that are included somewhere. Actually, I think "Profit Loss From Operating Activities" might not be pure EBIT. Let me check the P&L structure again. From the data: - "Profit Loss From Operating Activities" = 7,984 - "Share Of Other Comprehensive Income Of Associates..." = 146 (this is OCI, not P&L) - "Finance Income" = 1,204 - "Finance Costs" = 3,042 - "Finance Income Cost" = -1,838 (net) - "Profit Loss Before Tax" = 6,292 Check: 7,984 + 146 - 1,838 = 6,292? 7,984 + 146 = 8,130; - 1,838 = 6,292. Yes! But wait, the 146 is OCI, not profit. So how does it get to PBT? Actually, looking more carefully: "Share Of Other Comprehensive Income..." - this might be share of profit of associates, not OCI. The name says "Other Comprehensive Income" but it might be translated oddly. In IFRS, "Share of profit of associates" is in P&L, while "Share of OCI of associates" is in OCI. Given the context and the amount (146), and that it's added to get to PBT, this is likely "Share of profit of associates and joint ventures" - equity method income. So: EBIT 7,984 + 146 (equity income) - 1,838 (net finance cost) = 6,292 PBT. Check: 7,984 + 146 = 8,130; 8,130 - 1,838 = 6,292. Yes! Now, the CFO reconciliation starts from "Profit Loss From Operating Activities" = 7,984. This is EBIT (operating profit before finance and taxes). Then adjustments: - D&A: +4,774 (non-cash expense in EBIT) - Correccion Valorativa: -470? Wait, this is impairment. If it was an expense in EBIT, we add it back. But the sign is negative in the data: "Correccion Valorativa De Deudores Comerciales YActivos De Contrato" = -470,000,000. If this is negative, and it's an adjustment to EBIT, then: if it was already an expense in EBIT (negative), adding a negative number would double-count. Unless the data format means "adjustment of -470" i.e., subtract 470. I think the data format shows the value of the line item, and in the reconciliation, these are added. So if "Correccion Valorativa" = -470, this means impairment expense of 470 (negative for profit), and in reconciliation, we add -470? That doesn't make sense. Actually, in standard cash flow presentation, adjustments to reconcile profit to CFO are shown as positive numbers when they are add-backs. So "Depreciation Amortisation..." = 4,774 means +4,774 in the reconciliation. If "Correccion Valorativa" = -470 in the data, this might mean it's a negative adjustment (i.e., subtract) or it might mean the line item itself is negative (impairment loss). Given the name "Correccion Valorativa" (valuation correction/impairment), and that impairments are added back to profit, I think the value -470 means it's an impairment loss (expense), and in the reconciliation, we add back +470. But the data shows -470, which is confusing. Wait - looking at the pattern: "Adjustments For Undistributed Profits..." = -146. Undistributed profits of equity investments are subtracted from profit to get to cash (because they're in profit but not cash). So -146 means subtract 146 in the reconciliation. Similarly, "Correccion Valorativa" = -470. If this is impairment, it was an expense in profit, so we add it back. But the sign is negative, suggesting we subtract it? That would be wrong. Unless... the data format uses negative for expenses and positive for income, and in the reconciliation column, these are just the line item values. So -470 means impairment expense (negative value), and when building the reconciliation, we add +470 (the absolute value). I think there might be a sign convention issue in the data. Let me assume that for reconciliation items: - D&A: +4,774 (add back expense) - Impairment: +470 (add back expense, absolute value) - Equity earnings: -146 (subtract income) - Finance cost adjustment: +1,842 (add back non-cash or reconcile) - Working capital: as signed Then: 7,984 + 4,774 + 470 - 146 + 1,842 - 1,701 + 521 + 44 - 512 - 1,055 + 67 = ? 7,984 + 4,774 = 12,758 + 470 = 13,228 (this is EBITDA!) - 146 = 13,082 + 1,842 = 14,924 - 1,701 = 13,223 + 521 = 13,744 + 44 = 13,788 - 512 = 13,276 - 1,055 = 12,221 + 67 = 12,288 Still not 10,443. Hmm. Wait, I think I need to reconsider. The "Adjustments For Finance Income Cost" = 1,842. If EBIT is 7,984 (before finance costs), then adding 1,842 doesn't make sense unless this is something else. Actually, re-reading: "Adjustments For Finance Income Cost" might mean "adjustment for (finance income - finance cost)" or "adjustment to reconcile finance income/cost to cash". Since EBIT excludes finance costs, this adjustment might be for items in EBIT that are finance-related, or for the net finance cost that needs to be adjusted. But actually, looking at Spanish accounts, "Profit Loss From Operating Activities" (Resultado de explotación) might include some finance items or be after some adjustments. Let me try a completely different approach. Let me just use the standard S&P formula and make reasonable estimates. **FFO = EBITDA - Cash Interest - Cash Taxes** = 13,228,000,000 - Cash Interest - 1,055,000,000 For Cash Interest, I'll use the total cash paid for interest on debt-like obligations. From the cash flow: - Interest on bank loans/bonds: 1,495,000,000 - Interest on leases: 61,000,000 - Interest on perpetual bonds: 169,000,000 Total = 1,725,000,000 But should capitalized interest be included? It's cash paid but not expensed. For FFO, since it's not in EBITDA, we don't subtract it. So FFO = 13,228 - 1,725 - 1,055 = 10,448,000,000. This is very close to CFO of 10,443,000,000. The 5 million difference is likely rounding or minor classification. Actually, I think CFO includes working capital changes and other items that FFO excludes. So FFO should be different from CFO. Wait, let me check: if FFO = 10,448 and CFO = 10,443, then working capital changes = CFO - FFO = -5? That would mean almost no working capital change, which contradicts the -1,648 I calculated. I think my working capital calculation or understanding is flawed. Let me just accept that: **FFO ≈ 10,443,000,000 EUR** (using CFO as proxy, or 10,448,000,000 using EBITDA formula) Given the closeness, I'll use **FFO = 10,443,000,000 EUR** as the most defensible number from the actual cash flow statement, which is essentially FFO after all adjustments. But wait - S&P FFO is specifically BEFORE working capital changes. CFO includes working capital changes. So I need to adjust CFO to get FFO. From the data, I can identify working capital and other cash-accrual differences. But the sign convention is confusing. Let me try yet another approach. In the cash flow reconciliation, items that are "accrual to cash" adjustments for working capital and other items: - Receivables: -1,701 (increase, use of cash) - Inventories: +521 (decrease, source of cash) - Payables: +44 (increase, source of cash) - Provisions paid: -512 (cash payment, use) - Taxes paid: -1,055 (cash payment, use) - Dividends received: +67 (cash receipt) These sum to: -1,701 + 521 + 44 - 512 - 1,055 + 67 = -2,636 But this includes taxes and dividends which are not working capital. Working capital only (receivables, inventory, payables): -1,701 + 521 + 44 = -1,136 If CFO = FFO + Working capital changes + Other cash-accrual differences, then: FFO = CFO - Working capital changes - Other differences = 10,443 - (-1,136) - (-2,636 + 1,136) ... this is getting convoluted. Let me define: Other cash-accrual differences = Taxes paid + Dividends received + Provisions paid + other items = -1,055 + 67 - 512 = -1,500 Then CFO = FFO + Working capital changes + Other differences 10,443 = FFO + (-1,136) + (-1,500) FFO = 10,443 + 1,136 + 1,500 = 13,079 But this should equal EBITDA - Cash Interest = 13,228 - 1,725 = 10,503 (if we don't subtract taxes). Or EBITDA - Cash Interest - Cash Taxes = 10,448. Hmm, 13,079 vs 10,448. Big difference. I think the issue is that "Other differences" includes taxes and dividends, but in the FFO formula, we subtract cash taxes. So: FFO = EBITDA - Cash Interest - Cash Taxes = 13,228 - 1,725 - 1,055 = 10,448 But from CFO reconciliation, if I add back working capital and other items to CFO, I get 13,079. This includes adding back taxes paid (1,055) and dividends received (67) and provisions paid (512). Wait - provisions paid is not typically in FFO. It's a cash expense that reduces FFO. So maybe: FFO = CFO + Working capital uses - Working capital sources + Other items = 10,443 + 1,701 - 521 - 44 + 512 - 67 + ... Actually, let me think of it as: FFO is cash from operations before working capital changes and before certain cash items that are financing or investing in nature. From CFO, add back: - Working capital uses (receivables increase): +1,701 - Subtract working capital sources (inventory decrease): -521 - Subtract working capital sources (payables increase): -44 - Provisions paid: this is operating, but is it in FFO? S&P sometimes excludes if it's not recurring. - Taxes paid: subtract from FFO? No, FFO is after cash taxes. - Dividends received: add to FFO? Sometimes yes, as part of operating cash. If FFO = EBITDA - Cash Interest - Cash Taxes, then: = 13,228 - 1,725 - 1,055 = 10,448 Let me verify with another approach. Net income = 5,060. Add D&A 4,774 = 9,834. Add other non-cash, subtract gains, etc. to get FFO. From cash flow, items between net income and CFO: - D&A: 4,774 - Impairment: 470 - Equity earnings: -146 (subtract, as not cash) - Finance adjustment: 1,842 - Working capital: -1,136 - Provisions paid: -512 - Taxes paid: -1,055 (but tax expense in P&L is 1,161, so difference is -106 deferred) - Dividends: 67 CFO = 5,060 + 4,774 + ... = 10,443 FFO (before working capital, taxes, provisions, dividends) = 5,060 + 4,774 + 470 - 146 + 1,842 + ... = 5,060 + 4,774 + 470 - 146 + 1,842 = 12,000? Then minus cash interest? No, finance adjustment already includes interest. I think "Adjustments For Finance Income Cost" = 1,842 is the add-back of non-cash finance costs or the difference between P&L finance costs and cash interest paid. Finance cost in P&L = 3,042. Cash interest paid = 1,914. Difference = 1,128. But adjustment is 1,842. Doesn't match. Unless: Finance income = 1,204. Net finance cost = 1,838. Cash interest paid = 1,725 (my earlier calc, excluding capitalized). Cash interest received = ? From investing: Interest received = 172. Total cash interest received = 172 + maybe more from operating? If cash net finance cost = 1,725 paid - 172 received = 1,553. P&L net finance cost = 1,838. Difference = 285. But adjustment is 1,842. This is not matching. Let me just accept that the cash flow reconciliation has its own logic and use the direct S&P formula. Given the complexity, I'll use: **FFO = EBITDA - Cash Interest - Cash Taxes = 13,228,000,000 - 1,725,000,000 - 1,055,000,000 = 10,448,000,000 EUR** Or, using CFO as a check and adjusting for working capital if I can figure it out properly: Actually, let me try one more time. From the EBITDA formula: FFO = EBITDA - Cash Interest - Cash Taxes Where: - EBITDA = 13,228 - Cash Interest = cash paid for interest = 1,495 (bank/bonds) + 61 (leases) + 169 (hybrids) = 1,725. Note: capitalized interest of 189 is excluded because it's not an expense in EBITDA. - Cash Taxes = 1,055 FFO = 13,228 - 1,725 - 1,055 = 10,448 I'll use **FFO = 10,448,000,000 EUR** (or approximately 10,443,000,000 if using actual CFO, with minor difference likely due to treatment of specific items). Given the data, let me use **FFO = 10,443,000,000 EUR** as the most directly observable number from the cash flow statement, which represents cash generated from operations. For S&P purposes, this is close enough to FFO if working capital changes are small or if the company defines it similarly. Actually, re-reading S&P methodology: "FFO to debt is the preferred measure" for transportation infrastructure, and for regulated utilities they also use FFO to debt. The exact definition is: "Funds from operations (FFO) to debt". S&P defines FFO as: net income before extraordinary items, adjusted for depreciation, amortization, deferred taxes, and other non-cash items. Given the ambiguity, I'll use the EBITDA-based calculation as it's more standard and transparent: **FFO = 10,448,000,000 EUR** ## Step 3: Estimate Adjusted_Debt From the balance sheet and methodology: **Adjusted_Debt = Reported debt + Leases + Pension deficit + Guarantees + Hybrid debt portion + Other debt-like items - Eligible cash** First, identify reported debt: - "Deudas Con Entidades De Credito YObligaciones UOtros Valores Negociables" (Bank loans and bonds): - Noncurrent: 36,129,000,000 (2023-01-01), 31,179,000,000 (2022-01-01) - Current: 10,458,000,000 (2023-01-01), 9,984,000,000 (2022-01-01) - Total: 46,587,000,000 (2023-01-01), 41,163,000,000 (2022-01-01) - "Instrumentos De Capital Con Caracteristicas De Pasivo Financiero" (Hybrid instruments): - Noncurrent: 576,000,000 (2023-01-01), 525,000,000 (2022-01-01) - Current: 87,000,000 (2023-01-01), 100,000,000 (2022-01-01) - Total: 663,000,000 (2023-01-01), 625,000,000 (2022-01-01) - "Noncurrent Derivative Financial Liabilities": 3,690,000,000 (2023-01-01), 1,673,000,000 (2022-01-01) - "Current Derivative Financial Liabilities": 3,398,000,000 (2023-01-01), 2,111,000,000 (2022-01-01) - "Other Noncurrent Financial Liabilities": 1,534,000,000 (2023-01-01), 1,545,000,000 (2022-01-01) - "Other Current Financial Liabilities": 5,058,000,000 (2023-01-01), 2,980,000,000 (2022-01-01) - "Noncurrent Lease Liabilities": 2,287,000,000 (2023-01-01), 2,253,000,000 (2022-01-01) - "Current Lease Liabilities": 151,000,000 (2023-01-01), 158,000,000 (2022-01-01) Total financial liabilities (reported debt): Noncurrent: 36,129 + 576 + 3,690 + 1,534 + 2,287 = 44,216 (matches "Noncurrent Financial Liabilities" line) Current: 10,458 + 87 + 3,398 + 5,058 + 151 = 19,152? But "Current Financial Liabilities" is 25,079. Hmm, let me check: 10,458 + 87 + 3,398 + 5,058 + 151 = 19,152. But reported is 25,079. Missing 6,927. Looking at "Current Financial Liabilities" = 25,079. Components I identified: bank loans/bonds 10,458, hybrids 87, derivatives 3,398, other 5,058, leases 151. Sum = 19,152. Missing items: "Trade And Other Payables To Trade Suppliers" = 5,927? No, that's trade payables, not financial liabilities. Actually, looking more carefully at current financial liabilities: there might be other items I'm missing. Let me check the data again. "Current Financial Liabilities" line items shown: - "Deudas Con Entidades De Credito YObligaciones UOtros Valores Negociables Corrientes" = 10,458 - "Instrumentos De Capital Con Caracteristicas De Pasivo Financiero Corriente" = 87 - "Current Derivative Financial Liabilities" = 3,398 - "Current Lease Liabilities" = 151 - "Other Current Financial Liabilities" = 5,058 Sum: 10,458 + 87 + 3,398 + 151 + 5,058 = 19,152. But "Current Financial Liabilities" total = 25,079. Difference = 5,927. Wait - "Trade And Other Payables To Trade Suppliers" = 5,927. Is this included in current financial liabilities? Trade payables are typically not financial liabilities (they're operating). But maybe in this classification they are? Actually, looking at the structure: "Trade And Other Payables To Trade Suppliers" is listed separately from "Current Financial Liabilities" in the data. But the total "Current Financial Liabilities" = 25,079 doesn't match my sum. Let me re-check: 10,458 + 87 + 3,398 + 151 + 5,058 = 19,152. Unless "Other Current Financial Liabilities" of 5,058 includes something else, or I'm missing an item. Actually, I see "Other Current Financial Liabilities" = 5,058,000,000. This might include trade payables or other items. Let me not worry about the exact breakdown and use the reported totals. From the data: - "Noncurrent Financial Liabilities" = 44,216,000,000 (2023-01-01), 37,175,000,000 (2022-01-01) - "Current Financial Liabilities" = 25,079,000,000 (2023-01-01), 21,297,000,000 (2022-01-01) Total reported financial liabilities = 69,295,000,000 (2023-01-01), 58,472,000,000 (2022-01-01) But wait, "Current Financial Liabilities" of 25,079 at 2023-01-01 and 21,297 at 2022-01-01. Let me verify with components at 2022-01-01: 9,984 + 100 + 2,111 + 158 + 2,980 = 15,333. But total is 21,297. Missing 5,964. Hmm, "Trade And Other Payables To Trade Suppliers" = 5,964,000,000 at 2022-01-01. This is close to the missing amount. So trade payables might be included in "Current Financial Liabilities" in this classification. Actually, looking at the data structure more carefully, I think "Current Financial Liabilities" as a total line includes all current liabilities that are financial in nature, which may include trade payables in some classifications. For S&P Adjusted Debt, I need to identify true debt-like obligations. Let me use a more careful approach: **Reported debt for S&P purposes** typically includes: - Bank loans and bonds (short-term and long-term) - Capitalized leases (if not already in debt) - Hybrid instruments (portion treated as debt) - Derivatives at fair value (if debt-like) - Other debt-like financial liabilities Excludes: - Trade payables (operating) - Accrued expenses (operating) From the data, let me identify: - "Deudas Con Entidades De Credito YObligaciones UOtros Valores Negociables" total: 46,587 (2023), 41,163 (2022) - "Instrumentos De Capital Con Caracteristicas De Pasivo Financiero" total: 663 (2023), 625 (2022) - Lease liabilities: 2,438 (2023), 2,411 (2022) - Derivative liabilities: 7,088 (2023), 3,784 (2022) - "Other Noncurrent Financial Liabilities": 1,534 (2023), 1,545 (2022) - "Other Current Financial Liabilities": 5,058 (2023), 2,980 (2022) For S&P Adjusted Debt: - Bank loans and bonds: 46,587 - Hybrid instruments: typically 50% treated as debt for investment grade = 332 (or full 663 if treated as debt) - Lease liabilities: included in adjusted debt = 2,438 - Derivatives: these are mark-to-market, not debt principal. Typically excluded from debt or netted. - Other financial liabilities: need to analyze if debt-like For regulated utilities, S&P says: "Where substantial seasonal working capital requirements...distort leverage measures, we adjust inventory and debt balances by netting the value of inventory against outstanding short-term borrowings." Also: "We deconsolidate securitized debt (and associated revenue and expense) that has been accorded specialized recovery provisions." For derivatives: S&P typically excludes derivative liabilities from adjusted debt (or nets against derivative assets). Let me use a standard approach: - Debt = Bank loans/bonds + 50% of hybrids + Lease liabilities + Other debt-like items - Less: Eligible cash From the data at 2022 year-end (2023-01-01): - Bank loans/bonds: 46,587 - Hybrids (50% as debt): 332 - Lease liabilities: 2,438 - Other financial liabilities (need to assess): "Other Noncurrent Financial Liabilities" = 1,534. This might include deferred payments, pension-related debt, or other items. Without detail, I'll include if clearly debt-like. "Other Current Financial Liabilities" = 5,058. This includes trade payables? Or other debt? Actually, looking at the balance sheet structure, "Other Current Financial Liabilities" of 5,058 seems high. At 2022-01-01 it was 2,980. This increase might relate to specific financing arrangements. For conservative approach, let me include all financial liabilities except derivatives and trade payables: Financial liabilities total: 69,295 (2023), 58,472 (2022) But this includes trade payables if they're classified as financial. Let me use reported financial liabilities and adjust: Actually, S&P typically uses: Adjusted Debt = Short-term debt + Long-term debt + Capitalized leases + 50% of hybrids (if investment grade) + Pension deficit + Guarantees + Other debt-like - Cash From the data, using 2022 year-end (2023-01-01 balances, which represent end of 2022): - Short-term debt: 10,458 (current bank loans/bonds) - Long-term debt: 36,129 (noncurrent bank loans/bonds) - Capitalized leases: 2,438 (lease liabilities) - Hybrids: 663 total, 50% as debt = 332 - Other: ? Total debt-like = 10,458 + 36,129 + 2,438 + 332 = 49,357 But "Noncurrent Financial Liabilities" includes more than just bank loans/bonds. It includes hybrids 576, derivatives 3,690, other 1,534, leases 2,287. Total 44,216. So bank loans/bonds within this are 36,129, but total noncurrent financial liabilities is 44,216. Similarly, current financial liabilities total 25,079 includes bank loans/bonds 10,458, hybrids 87, derivatives 3,398, leases 151, other 5,058. For S&P, derivatives are typically excluded from debt (or netted against assets). So: - Noncurrent debt excluding derivatives: 44,216 - 3,690 = 40,526 - Current debt excluding derivatives: 25,079 - 3,398 = 21,681 But this still includes other items that may not be debt-like. Let me use a simpler, more standard approach. S&P Global Ratings typically defines adjusted debt as: **Adjusted Debt = Total reported debt + Lease liabilities + 50% of hybrid securities (if treated as 50% equity) + Pension deficit + Guarantees - Cash and cash equivalents** Where "total reported debt" is debt from banks, bonds, and similar borrowings. From the data: - Total bank loans and bonds (short + long term): 46,587 - Lease liabilities: 2,438 - Hybrids at 50%: 332 - Pension deficit: Need to calculate Pension provisions: Noncurrent 1,226 + Current 42 = 1,268 at 2023-01-01. But these are provisions, not necessarily deficit. S&P calculates pension deficit as plan liabilities minus plan assets. Without pension plan details, I'll use the provision as proxy if it's net of plan assets, or make no adjustment if insufficient data. Actually, "Noncurrent Provisions For Employee Benefits" = 1,226 and "Current Provisions For Employee Benefits" = 42. These are likely pension and other post-employment benefits. If these are net liabilities (after plan assets), then the deficit is included in provisions. If there are plan assets not recognized, we'd need to gross up. For S&P, if the balance sheet shows net pension liability, we use that. If it's net pension asset, we typically exclude it (don't reduce debt). From the data, I don't see pension assets separately. The provisions likely represent the net liability. So pension deficit = 1,268. But wait - S&P typically uses the funded status: plan liabilities minus plan assets. If plan assets exist but aren't shown separately (e.g., held in trust), we need to estimate. Without data, I'll use a conservative approach. Actually, looking at the equity section and notes, I don't see detailed pension disclosures. Let me check if there are pension assets in "Noncurrent Financial Assets" or elsewhere. "Noncurrent Financial Assets" includes various items, but no specific pension assets mentioned. "Other Noncurrent Financial Assets" = 5,958. This could include many things. Given lack of specific pension asset data, I'll use the provision approach: if the company has recognized pension liability of 1,268, this is likely the net amount. S&P may add this to debt if it's underfunded. But actually, for many European companies, pension provisions are net liabilities. The S&P adjustment for pension deficit is typically: if the plan is underfunded (liabilities > assets), add the deficit to debt. If the recognized provision is already the net liability, then we've captured it. However, S&P often uses a more conservative measure: they may calculate the deficit using their own discount rate assumptions, or use the gross liability. Given complexity, let me use a simplified approach and note that pension deficit may be additional. **Cash and cash equivalents**: 4,608 (2023-01-01), 4,033 (2022-01-01) "Eligible cash" for S&P is typically cash and liquid investments that can be readily used to repay debt. Usually 100% of cash unless restricted. Also "Current Financial Assets" includes: - Other current financial assets: 2,964 - Current derivative financial assets: 1,849 - Cash and cash equivalents: 4,608 Total current financial assets: 4,813 (matches the total line) For eligible cash, S&P typically uses cash and cash equivalents, and may include some short-term investments. Let me use 4,608 as cash, and possibly part of other financial assets if liquid. Actually, "Other Current Financial Assets" = 2,964. This might include short-term deposits, receivables, or other liquid items. Without detail, I'll use only cash and cash equivalents as eligible cash: 4,608. But wait - at 2022-01-01, cash was 4,033. For year-end 2022 debt, should I use beginning or end of year cash? S&P typically uses end-of-period or average. For ratios, they often use end-of-period debt and average FFO, or various combinations. For consistency, let me use 2022 year-end balances (2023-01-01) for debt and cash. **Adjusted Debt calculation:** Base debt (bank loans and bonds): 46,587 + Lease liabilities: 2,438 + Hybrids at 50%: 332 + Pension deficit (net liability): 1,268 + Other debt-like items: ? Let me check "Other Noncurrent Financial Liabilities" = 1,534 and "Other Current Financial Liabilities" = 5,058. These could include: - Deferred payments - Vendor financing - Other borrowings If these are debt-like, include them. Without detail, I'll include a portion. Actually, looking at the total "Noncurrent Financial Liabilities" = 44,216 and "Current Financial Liabilities" = 25,079. The sum of identified components I listed earlier doesn't match, suggesting there are other items. Let me use the reported financial liability totals and make standard adjustments: Reported financial liabilities: 69,295 Less: Derivative liabilities (not debt principal): 7,088 Less: Trade payables (if included): ~5,927 Plus: Lease liabilities (already included? Under IFRS 16, yes): 2,438 already in financial liabilities Actually, under IFRS 16, lease liabilities ARE included in financial liabilities. So the 69,295 includes leases. Let me verify: Noncurrent financial liabilities 44,216 includes leases 2,287. Current financial liabilities 25,079 includes leases 151. Total leases in financial liabilities = 2,438. Yes, included. So reported financial liabilities of 69,295 includes: - Bank loans/bonds: 46,587 - Hybrids: 663 - Leases: 2,438 - Derivatives: 7,088 - Other: 12,519 (69,295 - 46,587 - 663 - 2,438 - 7,088 = 12,519) The "Other" of 12,519 includes other noncurrent 1,534 and other current 5,058, plus possibly other items I'm missing. For S&P adjusted debt, I'll use: - Total financial liabilities excluding derivatives (as these are MTM, not principal): 69,295 - 7,088 = 62,207 - Or more precisely: Bank loans/bonds + Hybrids + Leases + Other debt-like items Let me use a cleaner approach from the liability side: Total liabilities: 96,553 (2023-01-01: 67,714 noncurrent + 28,839 current) Less: Equity: 58,114 Assets: 154,667 Check: 58,114 + 96,553 = 154,667. Yes. Now, what part of liabilities is "debt"? From the data: - "Noncurrent Financial Liabilities": 44,216 - "Current Financial Liabilities": 25,079 - "Trade And Other Payables To Trade Suppliers": 5,927 - "Other Current Nonfinancial Liabilities": 2,811 - "Current Tax Liabilities Current": 156 - "Current Payables On Social Security And Taxes Other Than Income Tax": 1,262 - "Other Current Liabilities": 1,393 - "Current Provisions": 922 - "Liabilities Included In Disposal Groups Classified As Held For Sale": 27 Current liabilities total: 28,839. Sum of identified: 25,079 + 5,927? No, 5,927 is trade payables, likely included in other categories. Actually, looking at "Other Current Financial Liabilities" = 5,058. This might include trade payables. Let me not get bogged down in classification and use standard S&P adjustments on total financial liabilities. **Adjusted Debt = Reported debt + Lease liabilities + Pension deficit + Guarantees + Hybrid debt portion - Eligible cash** Where "Reported debt" is debt from borrowings (bank loans, bonds, notes). Using: - Bank loans and bonds: 46,587 - Lease liabilities: already included in 46,587? No, separate. Under IFRS 16, lease liabilities are separate from bank loans/bonds. So total is 46,587 + 2,438 = 49,025? No wait, the 46,587 is only bank loans/bonds, and leases are separate 2,438. But in financial liabilities total, both are included. Let me use: Reported debt = 46,587 (bank loans/bonds) + 2,438 (leases) + 663 (hybrids) + other debt-like. For S&P: - Bank loans/bonds: 46,587 - Leases: 2,438 (already capitalized under IFRS 16) - Hybrids: treat 50% as debt = 332 (or 0 if fully equity, or 663 if fully debt) - Pension deficit: 1,268 (provisions for employee benefits) - Guarantees: not disclosed, assume 0 - Other debt-like: need to assess "Other Financial Liabilities" "Other Noncurrent Financial Liabilities" = 1,534. Could include deferred payments, deposits, etc. Some may be debt-like. "Other Current Financial Liabilities" = 5,058. Could include bank overdrafts, short-term borrowings, or trade payables. For conservative estimate, I'll include other financial liabilities that are debt-like. But without detail, let me assume they're not pure debt (may include trade payables, accruals, etc.). Actually, looking at the 2022-01-01 to 2023-01-01 change in "Other Current Financial Liabilities": from 2,980 to 5,058, increase of 2,078. This significant increase suggests it might include new borrowings or financing arrangements. Let me use a comprehensive approach: **Adjusted Debt = Total financial liabilities - Derivatives (not debt principal) - Trade payables (operating) + Pension deficit (if not included) - Cash** Total financial liabilities: 69,295 Less derivatives: 7,088 Less trade payables (estimate): if "Trade And Other Payables To Trade Suppliers" = 5,927 is separate from financial liabilities, then no need to subtract from financial liabilities. But if included, subtract. From current financial liabilities 25,079, and components: bank loans 10,458, hybrids 87, derivatives 3,398, leases 151, other 5,058. The 5,058 "Other Current Financial Liabilities" might include trade payables. Actually, "Trade And Other Payables To Trade Suppliers" = 5,927 at 2023-01-01. This is close to "Other Current Financial Liabilities" of 5,058 plus some other items. I think "Trade And Other Payables To Trade Suppliers" is separate from the financial liabilities breakdown. Let me check if it's in the current liabilities total. Current liabilities total: 28,839. Components identified: - Current Financial Liabilities: 25,079 - Current Provisions: 922 - Liabilities in disposal groups: 27 - Other items: ? 28,839 - 25,079 - 922 - 27 = 2,811. This matches "Other Current Nonfinancial Liabilities" = 2,811. So "Trade And Other Payables To Trade Suppliers" = 5,927 must be INCLUDED in "Current Financial Liabilities" or elsewhere. Wait, let me re-check. The data shows: - "Trade And Other Payables To Trade Suppliers" 2023-01-01: 5,927,000,000 EUR - "Other Current Financial Liabilities" 2023-01-01: 5,058,000,000 EUR These are separate line items. But "Current Financial Liabilities" total is 25,079. If I add components: 10,458 + 87 + 3,398 + 151 + 5,058 = 19,152. Not 25,079. Missing 5,927! This equals "Trade And Other Payables To Trade Suppliers". So trade payables ARE included in current financial liabilities in this classification. Similarly, at 2022-01-01: 9,984 + 100 + 2,111 + 158 + 2,980 = 15,333. Missing 5,964 from 21,297. And "Trade And Other Payables To Trade Suppliers" = 5,964. Yes! So "Current Financial Liabilities" INCLUDES trade payables. This is unusual (typically trade payables are operating, not financial), but it's how this company classifies them. For S&P Adjusted Debt, I need to EXCLUDE trade payables (operating) and INCLUDE only debt-like obligations. So from Current Financial Liabilities 25,079, subtract trade payables 5,927 = 19,152 debt-like current financial liabilities. From Noncurrent Financial Liabilities 44,216, need to check if includes non-trade items. The components I listed: bank loans 36,129, hybrids 576, derivatives 3,690, other 1,534, leases 2,287. Sum = 44,216. No trade payables here (they're current). So total debt-like financial liabilities = 19,152 (current) + 44,216 (noncurrent) - trade payables? No, I already adjusted current. Wait: Total financial liabilities = 25,079 current + 44,216 noncurrent = 69,295. Less: Trade payables in current = 5,927 Less: Derivatives (not debt principal) = 7,088 Plus: Pension deficit = 1,268 (if not in financial liabilities; it's in provisions, not financial liabilities) Debt-like obligations = 69,295 - 5,927 - 7,088 = 56,280 Then add pension deficit: 56,280 + 1,268 = 57,548 Then hybrid treatment: if 50% equity, then reduce by 332: 57,548 - 332 = 57,216? Or if we already included full 663 in debt, and S&P treats 50% as equity, then subtract 332. Actually, hybrids of 663 are included in financial liabilities. S&P treats 50% as debt for investment grade, so debt portion = 332. But we have full 663 in our 56,280. So we need to subtract 331 (equity portion). Wait, let me recalculate. The 663 is in financial liabilities. If S&P treats 50% as equity, then only 332 is debt. So from 56,280, I need to subtract 331 (the equity portion of hybrids). Adjusted debt before cash = 56,280 - 331 = 55,949? No wait: 56,280 includes full 663. If only 332 is debt, then subtract 331. But 56,280 was after subtracting trade payables and derivatives. Does it include hybrids? Yes, hybrids are in financial liabilities, not derivatives or trade payables. So: 56,280 includes full hybrids 663. Adjust to 50%: 56,280 - 331 = 55,949. Then subtract eligible cash: 4,608 **Adjusted Debt = 55,949 - 4,608 = 51,341** Let me verify this calculation: - Total financial liabilities: 69,295 - Less trade payables: -5,927 → 63,368 - Less derivatives: -7,088 → 56,280 - Less hybrid equity portion (50%): -331 → 55,949 - Less cash: -4,608 → 51,341 Hmm, but I need to check if pension deficit is already in debt. The pension provisions are in "Noncurrent Provisions" and "Current Provisions", not in financial liabilities. So yes, I need to add pension deficit. Revised: - After adjustments: 55,949 - Add pension deficit: +1,268 → 57,217 - Less cash: -4,608 → 52,609 Wait, I said pension deficit not in financial liabilities, so add it. But let me check: "Noncurrent Provisions For Employee Benefits" = 1,226, "Current Provisions For Employee Benefits" = 42. These are provisions, not financial liabilities. So yes, add to debt. But are these the net pension liability or gross? In IFRS, companies show the net position (plan assets - plan liabilities) as a net asset or liability. If it's a net liability (provisions), this is already the deficit. So I should add the net pension liability to debt. However, S&P sometimes uses a different calculation. They may calculate the deficit as: Plan liabilities - Plan assets. If the company shows a net liability, that's the deficit. If the company shows a net asset (prepaid pension), S&P may still add the gross liability to debt and subtract the asset, or may ignore the asset. Given we have net liability (provisions), add 1,268 to debt. **Adjusted Debt = 52,609,000,000 EUR** Let me also check if there are other debt-like items: - "Other Noncurrent Nonfinancial Liabilities" = 309 - "Current Tax Liabilities" = 156 + 362 noncurrent = 518 total - "Current Payables On Social Security And Taxes Other Than Income Tax" = 1,262 - "Other Current Liabilities" = 1,393 These are typically not debt-like (taxes, social security, other accruals). - "Noncurrent Government Grants" = 1,247 - this is deferred income, not debt - "Instalaciones Cedidas YFinanciadas Por Terceros" = 5,673 - "facilities granted and financed by third parties". This might be debt-like if third parties financed assets and expect repayment. "Instalaciones Cedidas YFinanciadas Por Terceros" = 5,673 at 2023-01-01, 5,424 at 2022-01-01. This is significant. It means "facilities ceded and financed by third parties" - essentially third-party financing of assets. This is likely debt-like. Add to adjusted debt: 5,673 Revised **Adjusted Debt = 52,609 + 5,673 = 58,282** Wait, is this already in financial liabilities? Let me check. "Instalaciones Cedidas YFinanciadas Por Terceros" is listed near "Noncurrent Government Grants" and "Noncurrent Provisions", not in financial liabilities. So it's a separate noncurrent liability, likely not in the 69,295 financial liabilities. So yes, add 5,673 to debt. Also check "Other Noncurrent Nonfinancial Liabilities" = 309. Probably not debt-like. And "Deferred Tax Liabilities" = 11,682. These are non-cash, deferred taxes. Typically not included in debt (they're a non-cash accounting item). So **Adjusted Debt = 58,282,000,000 EUR** Let me recalculate cleanly: Starting point: Total debt-like obligations from financial liabilities = Total financial liabilities - Trade payables - Derivatives - Equity portion of hybrids = 69,295 - 5,927 - 7,088 - 331 = 55,949 Add: Pension deficit (net liability in provisions) = 1,268 Add: Third-party financing of assets ("Instalaciones Cedidas YFinanciadas Por Terceros") = 5,673 Add: Other debt-like items (if any) = ? Check "Other Current Nonfinancial Liabilities" = 2,811. Could include some debt-like items. But without detail, exclude. Total debt-like obligations = 55,949 + 1,268 + 5,673 = 62,890 Less: Eligible cash = 4,608 **Adjusted Debt = 58,282,000,000 EUR** Actually, I want to double-check the hybrid treatment. S&P for investment-grade utilities typically treats hybrid securities as 50% debt and 50% equity. The hybrids here are "Instrumentos De Capital Con Caracteristicas De Pasivo Financiero" = 663 total. So debt portion = 332, equity portion = 331. In my calculation, I started with full financial liabilities including 663 hybrids, then subtracted 331 to get to 50% treatment. That's correct. But wait - are hybrids included in "financial liabilities"? Yes, the name says "Capital Instruments With Debt Characteristics" and they're classified as financial liabilities. So yes, included. Now, one more check: should I use 2022 year-end or average debt? S&P typically uses end-of-period debt for leverage ratios, or sometimes average. For consistency with FFO (which is a flow over the year), some use average debt. But standard practice is end-of-period. Actually, for FFO/Debt, S&P typically uses end-of-period debt in the denominator. Let me use 2023-01-01 balances (end of 2022). But I should also consider if 2022-01-01 (beginning of year) debt is relevant. For growth companies or with significant changes, average might be better. Given debt increased significantly during 2022 (from 58,472 to 69,295 in financial liabilities), average debt might be more representative. Average financial liabilities = (58,472 + 69,295) / 2 = 63,883.5 But for other items (pension, third-party financing, cash), I need averages too. Actually, S&P typically uses year-end debt for simplicity in published ratios. Let me stick with year-end 2022 (2023-01-01). However, I realize I should check if the 2023-01-01 balances are indeed end-of-2022. The data format "2023-01-01" with "Previously Stated Member" 2022-01-01 suggests these are comparative balance sheets, so 2023-01-01 is end of 2022, and 2022-01-01 is end of 2021. Yes, this is correct: fiscal year ended December 31, 2022, so balances at 2023-01-01 represent end of 2022 (or very close, given January 1, 2023 is the next day). ## Step 4: Calculate FFO / Adjusted_Debt Using: - FFO = 10,448,000,000 EUR (from EBITDA - cash interest - cash taxes) - Adjusted Debt = 58,282,000,000 EUR FFO / Adjusted Debt = 10,448 / 58,282 = 0.1793 Or using FFO = 10,443,000,000 (CFO): 10,443 / 58,282 = 0.1792 Let me also try with FFO calculated differently. If I use the cash flow approach and add back working capital to CFO: Actually, I realize I should recalculate FFO more carefully. Let me use the S&P standard: FFO = Net income + Depreciation + Deferred taxes + Other non-cash items - Gain on sales + Equity earnings - Dividends from equity investments Or from EBITDA: FFO = EBITDA - Cash interest - Cash taxes With: - EBITDA = 13,228 - Cash interest = 1,725 (as calculated) - Cash taxes = 1,055 FFO = 13,228 - 1,725 - 1,055 = 10,448 But I want to verify cash interest. From cash flow statement: - "Intereses Pagados Excluidos Intereses Capitalizados De Deudas Con Entidades De Credito YObligaciones UOtros Valores Negociables" = 1,495 - "Intereses Pagados Excluidos Intereses Capitalizados De Pasivos Financieros Por Arrendamiento" = 61 - "Intereses Pagados De Obligaciones Perpetuas Subordinadas" = 169 Sum = 1,725. Yes. Is there any other interest paid? The capitalized interest of 189 is in investing activities. Should this be included? Capitalized interest is not an expense, so not subtracted from EBITDA. But it is a cash outflow related to debt. For S&P FFO, typically only interest expense (cash paid) is subtracted, not capitalized interest. However, some analysts treat capitalized interest as a use of cash that should be reflected. But in standard S&P FFO, it's not subtracted because it's not in EBITDA. Let me verify with another approach. If FFO = 10,448, and debt = 58,282, ratio = 0.1793. But I want to check if my debt is too high. Let me see if there are items I shouldn't include. Third-party financing "Instalaciones Cedidas YFinanciadas Por Terceros" = 5,673. Is this truly debt-like? The name suggests third parties financed facilities that are ceded (leased or transferred) to the company. This could be: - Lease-like arrangements where third parties own assets but company operates them - Concession arrangements - Other financing If these are essentially leases or debt, include them. Given the name "financed by third parties", it suggests debt-like obligation. But wait - under IFRS 16, many leases are already capitalized. Are these "instalaciones cedidas" already included in lease liabilities? Let me check. "Instalaciones Cedidas YFinanciadas Por Terceros" = 5,673. Lease liabilities = 2,438. These are different amounts. The "instalaciones cedidas" might be a different type of arrangement, possibly operating leases not capitalized under IFRS 16, or other third-party financing. For S&P, if these are debt-like (company has obligation to pay third parties for financed assets), include in adjusted debt. However, I should check if this is already included in financial liabilities. Looking at the balance sheet structure, "Instalaciones Cedidas YFinanciadas Por Terceros" is listed near "Noncurrent Government Grants" and "Noncurrent Provisions", separate from "Noncurrent Financial Liabilities". So likely NOT in financial liabilities. Given this is specific to Spanish utilities, and represents third-party financed assets that are ceded to the company, this is likely a debt-like obligation. I'll include it. But let me reconsider the magnitude. Including 5,673 increases debt by about 10%. Is this reasonable? Total debt-like without this: 55,949 (from financial liabilities, adjusted) + 1,268 (pension) = 57,217. Less cash 4,608 = 52,609. With third-party financing: +5,673 = 58,282. Actually, I want to check if "Instalaciones Cedidas YFinanciadas Por Terceros" is already captured in "Other Noncurrent Financial Liabilities" or elsewhere. The "Other Noncurrent Financial Liabilities" = 1,534. Too small to include 5,673. So it's separate. Given the specialized nature of utility accounting in Spain, and that this represents third-party financing, I'll include it. Let me also verify my trade payables subtraction. I subtracted 5,927 from current financial liabilities because I believed trade payables were included. Let me verify this is correct. At 2023-01-01: - "Trade And Other Payables To Trade Suppliers" = 5,927 - "Current Financial Liabilities" total = 25,079 - Components of current financial liabilities: bank loans 10,458, hybrids 87, derivatives 3,398, leases 151, other 5,058. Sum = 19,152. Missing 5,927. Yes, 25,079 - 19,152 = 5,927. So trade payables are included in current financial liabilities. At 2022-01-01: - Trade payables = 5,964 - Current financial liabilities = 21,297 - Components: 9,984 + 100 + 2,111 + 158 + 2,980 = 15,333. Missing 5,964. Yes, confirmed. Trade payables are in current financial liabilities. Now, are trade payables debt? No, they're operating liabilities. So subtract them. But wait - in some classifications, "trade payables" includes amounts owed to suppliers for goods and services, which is operating. But "Other Payables" might include accrued expenses, deferred income, or other items that are not debt. The line is "Trade And Other Payables To Trade Suppliers". The "other" might refer to other suppliers, not other types of payables. So this is likely pure trade payables. Given this, my adjustment seems correct. Let me also reconsider pension deficit. The "Noncurrent Provisions For Employee Benefits" = 1,226 and "Current Provisions For Employee Benefits" = 42. Total = 1,268. Are these net or gross? In IFRS, companies typically show the net position (plan liabilities minus plan assets) in the balance sheet. If the plan is in deficit (liabilities > assets), it's shown as a liability. If in surplus, as an asset. Given we have provisions (liabilities), this is a net deficit. So the full 1,268 is the underfunded amount. S&P would add this to debt. However, S&P sometimes uses a more conservative approach: they calculate the deficit using a lower discount rate than the company, which increases liabilities and thus the deficit. Without company-specific pension data, I can't recalculate. I'll use the reported deficit. Now, let me finalize my numbers: **FFO = 10,448,000,000 EUR** **Adjusted Debt = 58,282,000,000 EUR** FFO / Adjusted Debt = 10,448 / 58,282 = 0.1793 Let me also calculate with slightly different assumptions to see sensitivity: If exclude third-party financing (5,673): Adjusted Debt = 52,609 FFO / Debt = 10,448 / 52,609 = 0.1986 If use 50% of third-party financing (uncertain nature): Adjusted Debt = 55,446 FFO / Debt = 10,448 / 55,446 = 0.1884 If include full hybrids as debt (not 50%): Add 331 to debt: 58,613 FFO / Debt = 10,448 / 58,613 = 0.1782 If use average debt instead of year-end: Average debt would be lower if debt increased during year. Financial liabilities at 2022-01-01 = 58,472 vs 69,295 at 2023-01-01. Average = 63,884. But my adjusted debt at 2022-01-01 would need to be calculated. At 2022-01-01: - Financial liabilities: 58,472 - Less trade payables: 5,964 - Less derivatives: 3,784 - Less hybrid equity portion: 313 (50% of 625) - Debt-like from fin liab: 58,472 - 5,964 - 3,784 - 313 = 48,411 Add pension deficit: 1,619 (1,592 + 27) Add third-party financing: 5,424 Less cash: 4,033 Adjusted Debt 2022-01-01 = 48,411 + 1,619 + 5,424 - 4,033 = 51,421 Average adjusted debt = (51,421 + 58,282) / 2 = 54,852 FFO / Average Debt = 10,448 / 54,852 = 0.1905 Given S&P typically uses year-end debt, I'll stick with 0.1793. But let me see if I can refine my FFO. Actually, I want to check one more thing. Is the EBITDA of 13,228 correct? Let me verify from the P&L components. From earlier: Gross Profit: 20,199 Less: Employee Benefits: 3,365 Plus: Other Work Capitalized: 847 Less: Gastos De Servicios: 3,602 Plus: Other Gains Losses: 911 Less: Gasto Operativo Neto: 5,209? Wait, this is "net operating expense" which seems to be a total. Actually, looking more carefully at the structure: - "Gasto Operativo Neto" = -5,209,000,000. This is "Net Operating Expense" or "Net Operating Cost". - Then "Tax Expense Other Than Income Tax" = 1,762,000,000 (positive, so expense) - Then "Beneficio Bruto De Explotacion Ebitda" = 13,228,000,000 Wait, the signs are confusing. Let me re-read: "Tax Expense Other Than Income Tax Expense" 2022-01-01 - 2023-01-01: 1762000000 EUR. This is an expense, so negative for profit. But in my earlier calculation, I had: 20,199 - 3,365 + 847 - 3,602 + 911 - 1,762 = 13,228. Let me check: 20,199 - 3,365 = 16,834. + 847 = 17,681. - 3,602 = 14,079. + 911 = 14,990. - 1,762 = 13,228. Yes. But where does "Gasto Operativo Neto" = -5,209 fit in? Actually, looking at the data sequence: - "Gasto Operativo Neto" = -5,209 - "Tax Expense Other Than Income Tax" = 1,762 - "Beneficio Bruto De Explotacion Ebitda" = 13,228 Wait, "Gasto Operativo Neto" is negative (-5,209), meaning it's an expense. Then "Tax Expense..." is positive (1,762), which in this data format might mean expense (positive number for expense item). Then EBITDA is 13,228. Actually, I think the data format uses positive numbers for income items and negative for expense items, OR it uses the sign as presented in the financial statements where expenses are negative. Looking at "Gross Profit" = 20,199 (positive, income) "Employee Benefits Expense" = -3,365 (negative, expense) "Other Work Performed By Entity And Capitalised" = 847 (positive, income/reduction of expense) "Gastos De Servicios" = -3,602 (negative, expense) "Other Gains Losses" = 911 (positive, income) "Gasto Operativo Neto" = -5,209 (negative, expense) "Tax Expense Other Than Income Tax" = 1,762 - wait, this is positive! But it's an expense. Hmm, "Tax Expense Other Than Income Tax Expense" = 1,762. If positive means expense, then... but gross profit and EBITDA are positive. Actually, re-looking: "Tax Expense Other Than Income Tax Expense" = 1762000000. The name says "Tax Expense", so it's an expense. But the number is positive. In some data formats, expenses are shown as positive numbers with the understanding they're expenses. But then "Gasto Operativo Neto" = -5209000000. This is negative, suggesting it's an expense (negative for profit). I think there might be inconsistency in sign convention, or "Gasto Operativo Neto" is actually a net figure that can be negative (expense) or positive (income). Let me ignore the signs and focus on the magnitude. The EBITDA of 13,228 is explicitly stated as "Beneficio Bruto De Explotacion Ebitda". I'll use this as reported. One more check: is EBITDA after or before "Other Gains Losses"? The sequence suggests EBITDA comes after all these items. So EBITDA includes Other Gains Losses of 911. If "Other Gains Losses" includes nonrecurring items (asset sales, etc.), S&P might adjust EBITDA. But without detail, I'll use reported EBITDA. ## Final Calculation **FFO = 10,448,000,000 EUR** **Adjusted Debt = 58,282,000,000 EUR** FFO / Adjusted Debt = 10,448 / 58,282 = 0.1793... Let me calculate more precisely: 10,448 / 58,282 = 0.179267... Rounded to four decimal places: 0.1793 But let me reconsider if I should use CFO = 10,443 as FFO. The difference is small (5 million on 10,448 billion = 0.05%). If FFO = 10,443: 10,443 / 58,282 = 0.17918... ≈ 0.1792 Given the standard S&P formula uses EBITDA - cash interest - cash taxes, and my calculation of 10,448 is very close to CFO, I'll use 10,448 as it's methodologically cleaner. However, I want to check one more thing. Does CFO include dividends received? Yes, +67. Does FFO include dividends received? Sometimes yes, if from operating activities. In my EBITDA formula, I didn't include dividends. So FFO might be lower if dividends are excluded. Actually, S&P FFO typically includes dividends received from equity investments as part of FFO (they're cash inflows from operations). So my FFO of 10,448 might be understated by 67. But wait - in the EBITDA formula, FFO = EBITDA - cash interest - cash taxes. This doesn't include dividends. But CFO includes dividends. So CFO = 10,443 includes +67 dividends. If I add dividends to my FFO: 10,448 + 67 = 10,515. Then FFO/Debt = 10,515 / 58,282 = 0.1804. But in the EBITDA to FFO reconciliation, dividends received are typically AFTER EBITDA (they're below operating profit). So if we start from EBITDA, we need to add dividends to get to a comparable FFO. Actually, let me check: is "Dividends Received Classified As Operating Activities" included in EBITDA? No, dividends from investments are typically in net income, not EBITDA. EBITDA is before interest, taxes, depreciation, and also before equity earnings and dividends. So if I want FFO comparable to S&P's definition (which includes dividends from equity investments), I should add dividends received. Revised FFO = 10,448 + 67 = 10,515? Or is the 67 already in the 10,448? Let me trace: EBITDA = 13,228. This is before equity earnings, dividends, interest, taxes. Cash interest = 1,725. Cash taxes = 1,055. These are paid. But equity earnings of 146 are in P&L (added to EBIT to get PBT). Dividends received of 67 are cash, not in P&L (or rather, they're cash received from equity investments, not recognized as income if equity method is used). Actually, under equity method, the investor recognizes share of investee's profit (146), not dividends received. Dividends received reduce the investment carrying amount, not recognized as income. So dividends received of 67 are NOT in net income or EBITDA. They're a return of investment. For FFO, S&P typically includes dividends received from equity investments because they're cash available for debt service. So my FFO should be: EBITDA - cash interest - cash taxes + dividends received + other cash inflows from operations not in EBITDA. = 13,228 - 1,725 - 1,055 + 67 = 10,515 But wait, is this correct? Let me check with CFO. CFO = 10,443. This includes: - Net income effects (including equity earnings, working capital, etc.) - Various adjustments From earlier reconciliation attempt, I couldn't match exactly. But 10,515 vs 10,443 is close (difference 72). Actually, I think the difference might be explained by working capital changes and other items. Let me not overcomplicate. Given that S&P FFO is typically defined as: FFO = Net income + D&A + Deferred taxes + Other non-cash items - Gain on asset sales + Equity earnings - Dividends from equity investments... Wait, no. Standard FFO: FFO = Net income from continuing operations + Depreciation + Deferred income taxes + Other non-cash items Or from cash flow: FFO = CFO before working capital changes. Given the ambiguity, let me use a practical approach. The S&P formula FFO = EBITDA - Cash Interest - Cash Taxes is widely used. I'll add dividends received as they're cash available for debt service. FFO = 13,228 - 1,725 - 1,055 + 67 = 10,515 But actually, I need to check if "cash taxes" of 1,055 is correct, or if there are tax refunds or other tax items. "Income Taxes Paid Classified As Operating Activities" = 1,055. This is cash outflow. There might also be tax refunds received. Looking at the data, I don't see tax refunds separately. So cash taxes = 1,055. Also, are there other cash items in operating activities? "Dividends Received" = 67. "Interest Received" might be in investing, not operating. From operating, only dividends of 67. So FFO = 10,515. But wait - I need to verify my cash interest again. The cash flow shows: - "Intereses Pagados Excluidos Intereses Capitalizados De Deudas Con Entidades De Credito YObligaciones UOtros Valores Negociables" = 1,495 - "Intereses Pagados Excluidos Intereses Capitalizados De Pasivos Financieros Por Arrendamiento" = 61 - "Intereses Pagados De Obligaciones Perpetuas Subordinadas" = 169 Total = 1,725. These are in financing activities (except lease interest might be in operating or financing). Is there interest received in operating activities? Not shown separately. There is "Interest Received Classified As Investing Activities" = 172. For net cash interest, we might subtract interest received from interest paid. But S&P typically uses gross cash interest paid in FFO calculation, and interest received is separate. Actually, some S&P approaches use: FFO = EBITDA - Net cash interest - Cash taxes. But standard is gross interest paid. Let me use FFO = 10,515 (with dividends) or 10,448 (without dividends). Looking at S&P methodology more carefully, they typically define FFO as: "Funds from operations (FFO). We calculate FFO as cash flow from operations before changes in working capital, minus cash tax payments, minus interest paid (or plus interest received, in some definitions)." Actually, the exact S&P definition varies. Let me use the most common: FFO = EBITDA - Cash Interest - Cash Taxes Where Cash Interest is interest paid on debt (gross, not net of interest received). So FFO = 13,228 - 1,725 - 1,055 = 10,448. I'll use this as my primary estimate. For adjusted debt, let me also verify my calculation one more time. At 2023-01-01 (end of 2022): - Bank loans and bonds (noncurrent + current): 36,129 + 10,458 = 46,587 - Hybrid instruments: 576 + 87 = 663. At 50% debt = 332 - Lease liabilities: 2,287 + 151 = 2,438 - Derivative liabilities: 3,690 + 3,398 = 7,088 (exclude from debt) - Other financial liabilities: 1,534 + 5,058 = 6,592. Need to analyze. For "Other Current Financial Liabilities" = 5,058, which includes trade payables of 5,927? No, that doesn't make sense (can't include 5,927 in 5,058). Wait, I made an error earlier. Let me recheck. At 2023-01-01: - "Current Financial Liabilities" total = 25,079 - Components given: "Deudas Con Entidades De Credito..." = 10,458, "Instrumentos De Capital..." = 87, "Current Derivative Financial Liabilities" = 3,398, "Current Lease Liabilities" = 151, "Other Current Financial Liabilities" = 5,058 - Sum: 10,458 + 87 + 3,398 + 151 + 5,058 = 19,152 - Missing from total: 25,079 - 19,152 = 5,927 And "Trade And Other Payables To Trade Suppliers" = 5,927. So yes, trade payables are included in current financial liabilities. But "Other Current Financial Liabilities" = 5,058 is a separate line item, not trade payables. Trade payables are ADDITIONAL to the components listed, making up the difference to 25,079. So current financial liabilities = 19,152 (debt-like) + 5,927 (trade payables) = 25,079. For my adjusted debt, I should use the debt-like portion 19,152, not the total 25,079. I already did this by subtracting trade payables. Similarly for noncurrent financial liabilities = 44,216. Components: bank loans 36,129, hybrids 576, derivatives 3,690, other 1,534, leases 2,287. Sum = 44,216. No trade payables here. So debt-like from financial liabilities = 19,152 (current) + 44,216 (noncurrent) - derivatives 7,088 - hybrid equity portion 331 = 55,949. Yes. Then add pension deficit 1,268 and third-party financing 5,673 = 62,890. Less cash 4,608 = 58,282. This seems correct. One more check: should I include "Other Noncurrent Financial Liabilities" = 1,534 and "Other Current Financial Liabilities" = 5,058 in debt? "Other Current Financial Liabilities" = 5,058. After removing trade payables (which were the missing 5,927, not in the 5,058), what's in the 5,058? Actually, I need to re-analyze. The components of current financial liabilities are: 1. Bank loans/bonds: 10,458 2. Hybrids: 87 3. Derivatives: 3,398 4. Leases: 151 5. Other current financial liabilities: 5,058 6. Trade payables: 5,927 (implied, to reach total 25,079) Wait, 10,458 + 87 + 3,398 + 151 + 5,058 + 5,927 = 25,079. Yes! So "Other Current Financial Liabilities" = 5,058 is DIFFERENT from trade payables. Trade payables are an additional 5,927. What is in "Other Current Financial Liabilities" = 5,058? Could be: - Short-term borrowings not from banks (e.g., commercial paper, factoring) - Current portion of long-term debt (but that's in bank loans/bonds) - Accrued interest - Other financial obligations Without detail, I'll include it as debt-like. It's in "financial liabilities", so likely debt-like. Similarly, "Other Noncurrent Financial Liabilities" = 1,534. Could be: - Long-term deposits received - Deferred payments - Other non-bank borrowings I'll include as debt-like. So my debt-like from financial liabilities = 55,949 seems reasonable. Now, one more item to consider: "Cartera De Valores No Corrientes" = 32 (noncurrent securities portfolio). This is an asset, not liability. And "Noncurrent Derivative Financial Assets" = 3,661. These could be netted against derivative liabilities. S&P sometimes nets derivative assets against derivative liabilities. If I do this: Derivative liabilities = 7,088 Derivative assets = 3,661 (noncurrent) + 1,849 (current) = 5,510 Net derivative liability = 7,088 - 5,510 = 1,578. Or if gross, 7,088. If I net: debt decreases by 5,510 (or by 5,510 if assets are eligible for netting). But in my calculation, I excluded derivatives entirely from debt (subtracted 7,088). If I instead include net derivatives: Debt-like from fin liab = 19,152 + 44,216 - 0 (derivatives excluded) - 331 = 63,037? No wait. If I include net derivatives: total financial liabilities 69,295 - trade payables 5,927 - gross derivative assets 5,510 (instead of derivative liabilities) = 57,858. Then add net derivatives 1,578 = 59,436? This is getting messy. Standard S&P practice is to exclude derivatives from debt (or include only net if in same counterparty netting agreements). I'll stick with excluding derivatives from debt. Actually, for interest rate derivatives used to hedge debt, S&P may include or exclude depending on purpose. For commodity or trading derivatives, typically excluded. Given IBERDROLA is a utility with significant commodity and energy trading, derivatives likely include both hedging and trading. I'll exclude all derivatives from debt. Final numbers: - FFO = 10,448,000,000 - Adjusted Debt = 58,282,000,000 - Ratio = 0.1793 Let me also try if I use FFO without adding dividends (more conservative): - FFO = 10,448 - 67 = 10,381? No, my 10,448 didn't include dividends. So 10,448 is without dividends. Wait, I need to re-trace. My EBITDA = 13,228. This is before dividends, interest, taxes, etc. Cash interest = 1,725. Cash taxes = 1,055. FFO = 13,228 - 1,725 - 1,055 = 10,448. This does NOT include dividends received. If S&P FFO includes dividends received, then FFO = 10,448 + 67 = 10,515. But the standard formula FFO = EBITDA - Cash Interest - Cash Taxes doesn't include dividends. Some S&P definitions add dividends to FFO. Let me check S&P's exact definition from their methodology. The provided text doesn't specify the exact FFO formula, but in practice, S&P Global Ratings typically includes dividends received from equity investments in FFO if they're classified as operating activities. Given "Dividends Received Classified As Operating Activities" = 67, I'll include this in FFO. Revised FFO = 10,448 + 67 = 10,515,000,000 EUR FFO / Adjusted Debt = 10,515 / 58,282 = 0.1804 Rounded: 0.1804 Actually, let me verify if there are other items in CFO that should be in FFO. From the cash flow reconciliation: - "Adjustments For Undistributed Profits Of Investments Accounted For Using Equity Method" = -146. This means equity earnings of 146 were subtracted to get to CFO. For FFO, we want to exclude equity earnings (non-cash) and include dividends (cash). So my approach is correct: start from EBITDA (excludes equity earnings), subtract cash interest and taxes, add dividends. But wait - is equity earnings in EBITDA? No, EBITDA is before equity earnings (which are below EBIT). So EBITDA of 13,228 excludes the 146 equity earnings. Good. Now, are there other cash items from investments? "Dividends Received" = 67. Any other cash from equity investments? Not shown. So FFO = 10,515 seems correct if including dividends. However, I want to double-check: in the cash flow statement, CFO = 10,443. This includes: - All adjustments from net income to CFO - Working capital changes - Cash taxes paid - Dividends received - Etc. If I add back working capital uses and subtract working capital sources from CFO, I get FFO. Let me try: From earlier, working capital changes (receivables, inventory, payables) = -1,701 + 521 + 44 = -1,136 (net use) Also: provisions paid = -512 (cash expense, not accrual change) Taxes paid = -1,055 (cash, not in net income accrual) Dividends received = +67 (cash, not in net income) These are "other cash-accrual differences" not working capital. If FFO = CFO + working capital uses - working capital sources + other adjustments... Actually, let me think of it as: CFO = Net income + Non-cash items - Working capital uses + Working capital sources - Cash expenses not in net income + Cash receipts not in net income FFO = Net income + Non-cash items = CFO + Working capital uses - Working capital sources + Cash expenses not in net income - Cash receipts not in net income = 10,443 + 1,701 - 521 - 44 + 512 + 1,055 - 67 = 13,079 But this should equal EBITDA - Cash Interest + some items... 13,079 vs my EBITDA of 13,228. Difference = 149. This could be finance cost adjustment or other items. Actually, I think the issue is that "Net income" in the CFO reconciliation is not the same as "Profit Loss" = 5,060. The CFO starts from "Profit Loss From Operating Activities" = 7,984, not net income. So FFO from this approach would be different. Let me accept that my EBITDA-based FFO calculation is methodologically sound and use it. Final answer: FFO / Adjusted Debt = 10,515 / 58,282 = 0.1804 Or if using FFO without dividends: 10,448 / 58,282 = 0.1793 Given S&P typically includes dividends received in FFO, I'll use 0.1804. But let me also consider if my adjusted debt is too high. What if "Instalaciones Cedidas YFinanciadas Por Terceros" is not debt-like? If exclude this 5,673: Adjusted Debt = 58,282 - 5,673 = 52,609 FFO / Debt = 10,515 / 52,609 = 0.1999 ≈ 0.2000 This is a big difference (11% higher ratio). Given the name "financed by third parties", and that these are facilities ceded to the company, I believe this represents a debt-like obligation. The company has use of assets financed by others, implying an obligation to pay. This is similar to lease or concession arrangements. I'll keep it in adjusted debt. One more verification: let me see if there are any securitizations or other special items mentioned. The methodology mentions "We deconsolidate securitized debt". I don't see specific securitization debt in the data. Also, for working capital adjustments mentioned in regulated utilities: "we adjust inventory and debt balances by netting the value of inventory against outstanding short-term borrowings." Inventory = 2,159 at 2023-01-01. Short-term borrowings = 10,458 (current bank loans/bonds). If seasonal working capital distorts leverage, S&P might net inventory against short-term debt: reduce debt by 2,159, reduce inventory by 2,159 (or just reduce debt). If I reduce adjusted debt by inventory: 58,282 - 2,159 = 56,123 FFO / Debt = 10,515 / 56,123 = 0.1874 But this adjustment is only made "where substantial seasonal working capital requirements...distort leverage measures". For a utility with relatively stable operations, this might not apply. And the inventory is relatively small (2,159 vs debt of 58,282 = 3.7%). I'll not make this adjustment unless clearly warranted. Final calculation: FFO = 10,515,000,000 Adjusted Debt = 58,282,000,000 Ratio = 0.1804 Let me round: 0.1804 Actually, I want to do one more precision check on the division: 10,515 / 58,282 = ? 10,515 ÷ 58,282 = 0.180417... Rounded to four decimal places: 0.1804 If using FFO = 10,448 (no dividends): 10,448 / 58,282 = 0.179268... ≈ 0.1793 Given the ambiguity on dividends, and that S&P practice varies, I'll provide the calculation with dividends as it's more complete (dividends are cash available for debt service). However, looking at standard S&P definitions more carefully, they typically use: FFO = Cash flow from operations before working capital changes - Cash taxes Or: FFO = EBITDA - Cash interest - Cash taxes The first definition (from CFO) automatically includes dividends if they're in CFO. The second (from EBITDA) excludes dividends unless added. Given "Dividends Received Classified As Operating Activities" = 67 is in CFO, and if FFO is derived from CFO before working capital, then dividends are included. But my EBITDA formula excludes dividends. To match, I should add them. Final answer: **0.1804** Wait - I want to do one more sanity check. Is this ratio reasonable for a utility? For regulated utilities, FFO/Debt ratios typically range from 0.15 to 0.25 for investment-grade utilities. A ratio of 0.18 is in the lower investment-grade range (BBB), which seems reasonable given IBERDROLA's significant growth investments and debt. IBERDROLA is typically rated BBB+ to A- by S&P. An FFO/Debt of 0.18 would be consistent with lower investment grade, perhaps with some adjustment for growth capex or other factors S&P considers. Given this sanity check, my estimate seems reasonable. One final check: let me verify my FFO calculation with an alternative approach. From net income: - Profit Loss = 5,060 - Add: Depreciation = 4,774 - Add: Impairment (non-cash) = 470 - Less: Equity earnings (non-cash) = -146 - Add: Finance cost (accrual, non-cash portion) = need to estimate - Add: Deferred taxes = 106 (1,161 tax expense - 1,055 cash taxes) - Add: Other non-cash items = ? = 5,060 + 4,774 + 470 - 146 + 106 + ... = 10,264 + other items Need to add back non-cash finance costs. Finance cost in P&L = 3,042. Cash interest paid = 1,725. Non-cash finance cost = 1,317. But this includes lease interest (part of 61 might be non-cash? No, all paid), and other non-cash items. Actually, finance cost 3,042 - cash interest paid 1,725 = 1,317 non-cash or reconciling items. But we also have finance income 1,204. Net finance cost = 1,838. Cash net finance cost = 1,725 paid - ? received. Interest received in investing = 172. So cash net finance cost = 1,725 - 172 = 1,553? Or 1,725 paid gross. If cash interest paid = 1,725 and interest received = 172, net cash interest = 1,553. P&L net finance cost = 1,838. Difference = 285. This could be non-cash accruals, amortization of fees, foreign exchange, fair value changes, etc. For FFO, if we add back non-cash net finance cost: 285. Then FFO = 10,264 + 285 + 67 dividends = 10,616? This is higher than my 10,515. Hmm, this doesn't match. Let me not pursue this further and stick with my EBITDA-based calculation. Actually, I realize I may have double-counted or mis-specified. Let me just use the cleanest formula: **FFO = EBITDA - Cash Interest - Cash Taxes + Dividends received** = 13,228 - 1,725 - 1,055 + 67 = 10,515 This is clean, transparent, and methodologically sound. Final answer: 10,515 / 58,282 = 0.1804 0.1804