Strategic Shareholder Climate and Risk Financial Financial Barclays PLC 465 report information sustainability report Governance review review statements Annual Report 2022 Notes to the financial statements (continued) Assets and liabilities held at fair value EBITDA multiple EBITDA multiple is the ratio of the valuation of the investment to the earnings before interest, taxes, depreciation and amortisation. In general, a significant increase in the multiple will result in a fair value increase for an investment. Earnings multiple Earnings or Revenue multiple is the ratio of the valuation of the investment to the earnings or revenue. In general, a significant increase in the multiple will result in a fair value increase for an investment. Sensitivity analysis of valuations using unobservable inputs 2022 2021 Favourable changes Unfavourable changes Favourable changes Unfavourable changes Income Income Income Income statement Equity statement Equity statement Equity statement Equity £m £m £m £m £m £m £m £m Interest rate derivatives 119 — (155) — 51 — (79) — Foreign exchange derivatives 16 — (22) — 20 — (28) — Credit derivatives 79 — (71) — 111 — (103) — Equity derivatives 161 — (168) — 187 — (195) — Corporate debt 45 — (27) — 38 — (28) — Non-asset backed loans 316 — (521) — 165 — (256) — Private equity investments 268 1 (281) (1) 246 — (236) — a Other 71 — (82) — 62 — (80) — Total 1,075 1 (1,327) (1) 880 — (1,005) — Note a Other includes asset backed loans, equity cash products and funds and fund-linked products The effect of stressing unobservable inputs to a range of reasonably possible alternatives, alongside considering the impact of using alternative models, would be to increase fair values by up to £1,076m (2021: £880m) or to decrease fair values by up to £1,328m (2021: £1,005m) with substantially all the potential effect impacting profit and loss rather than reserves. Fair value adjustments Key balance sheet valuation adjustments are quantified below: 2022 2021 £m £m Exit price adjustments derived from market bid-offer spreads (577) (506) Uncollateralised derivative funding (11) (127) Derivative credit valuation adjustments (319) (212) Derivative debit valuation adjustments 208 91 Exit price adjustments derived from market bid-offer spreads The Group uses mid-market pricing where it is a market maker and has the ability to transact at, or better than, mid price (which is the case for certain equity, bond and vanilla derivative markets). For other financial assets and liabilities, bid-offer adjustments are recorded to reflect the exit level for the expected close out strategy. The methodology for determining the bid-offer adjustment for a derivative portfolio involves calculating the net risk exposure by offsetting long and short positions by strike and term in accordance with the risk management and hedging strategy. Bid-offer levels are generally derived from market quotes such as broker data. Less liquid instruments may not have a directly observable bid-offer level. In such instances, an exit price adjustment may be derived from an observable bid-offer level for a comparable liquid instrument, or determined by calibrating to derivative prices, or by scenario or historical analysis. Exit price adjustments derived from market bid-offer spreads have increased by £71m to £(577)m. Discounting approaches for derivative instruments Collateralised In line with market practice, the methodology for discounting collateralised derivatives takes into account the nature and currency of the collateral that can be posted within the relevant credit support annex (CSA). The CSA aware discounting approach recognises the ‘cheapest to deliver’ option that reflects the ability of the party posting collateral to change the currency of the collateral. Uncollateralised A fair value adjustment of £(11)m is applied to account for the impact of incorporating the cost of funding into the valuation of uncollateralised and partially collateralised derivative portfolios and collateralised derivatives where the terms of the agreement do not allow the rehypothecation of collateral received. This adjustment is referred to as the Uncollateralised derivative funding. Uncollateralised derivative funding has decreased by £116m to £(11)m as a result of underlying moves in the exposure profile of the derivative portfolio in scope.
Barclays PLC - Annual Report - 2022 Page 466 Page 468