2011 Annual Report - OTCIQ.com

206 Glossary of Financial Terms
EBIT
Adjusted earnings before interest and taxes. It is derived from
income/loss from continuing operations before interest income
and income taxes and is adjusted to exclude certain extraordinary
items, mainly other income and expenses of a nonrecurring
or rare nature (see Other non-operating earnings).
EBITDA
Adjusted earnings before interest, taxes, depreciation, and
amortization. E.ON’s key earnings figure for purposes of internal
management control and as an indicator of our businesses’
long-term earnings power. It is derived from income/
loss from continuing operations before interest income and
income taxes and is adjusted to exclude certain extraordinary
items, mainly other income and expenses of a non-recurring
or rare nature (see Other non-operating earnings).
Economic net debt
Key figure that supplements net financial position with pension
obligations and asset retirement obligations (less prepayments
to the Swedish nuclear fund). The calculation of economic
net debt includes the fair value (net) of currency derivatives
used for financing transactions (but excluding transactions
relating to our operating business and asset management)
in order to also reflect the foreign-currency effects of financial
transactions which, for accounting reasons, would not be
included in the components of net financial position.
Equity method
Method for valuing shareholdings in associated companies
whose assets and liabilities are not fully consolidated. The proportional
share of the company’s annual net income (or loss)
is reflected in the shareholding’s book value. This change is
usually shown in the owning company’s income statement.
Fair value
The price at which assets, debts, and derivatives pass from a
willing seller to a willing buyer, each having access to all the
relevant facts and acting freely.
Financial derivative
Contractual agreement based on an underlying value (reference
interest rate, securities prices, commodity prices) and a
nominal amount (foreign currency amount, a certain number
of stock shares).
Goodwill
The value of a subsidiary as disclosed in the parent company’s
consolidated financial statements resulting from the consolidation
of capital (after the elimination of hidden reserves and
liabilities). It is calculated by offsetting the carrying amount
of the parent company’s investment in the subsidiary against
the parent company’s portion of the subsidiary’s equity.
Impairment test
Periodic comparison of an asset’s book value with its fair
value. A company must record an impairment charge if it
determines that an asset’s fair value has fallen below its
book value. Goodwill, for example, is tested for impairment
on at least an annual basis.
International Financial Reporting Standards (“IFRS”)
Under regulations passed by the European Parliament and
European Council, capital-market-oriented companies in
the EU must apply IFRS for fiscal years that begin on or after
January 1, 2005, and by January 1, 2007, at the latest.
Investments
Cash-effective capital investments.
Net financial position
Difference between a company’s total financial assets (cash
and securities) and total financial liabilities (debts to financial
institutions, third parties, and associated companies).
Option
The right, not the obligation, to buy or sell an underlying asset
(such as a security or currency) at a specific date at a predetermined
price from or to a counterparty or seller. Buy options
are referred to as calls, sell options as puts.
Other non-operating earnings
Income and expenses that are unusual or infrequent, such as
book gains or book losses from significant disposals as well
as restructuring expenses (see EBIT).