Financial analysis : Question 4
I want to calculate the leverage of the parent company Endesa (on the basis of its annual accounts), but these include a tax loss carryforward, and your formula assumes after tax figures!

The sort of problems that you’ve observed at Endesa, always arise when a parent company has two functions – to be an operating company for its own account and a holding company for its subsidiaries. It is an illusory and vainglorious exercise to calculate the leverage or the returns on a company level, which only reflect a part of the group’s activity. For example, if Endesa had a new subsidiary, only the dividends paid would be seen on the company’s books, and earnings in reserve would not appear. It is thus impossible and of no interest to calculate returns at this level.

The only relevant figures are the consolidated figures which reflect the activity of the whole group. The rest is just arithmetic, which introduces the problem of methodology, of which the financial and economic significance is nil.