1.) Decompose Alcoa’s ROE for 2006 and 2007. In what direction do you see the company’s performance moving? What other information would you like to see (be specific)?
2.) Alcoa's net income for the 3rd quarter of 2007 increased 86% over 3rd quarter results from 2006. Why then did the stock price drop 6% after the company announced those earnings?
3.) Based on the data presented, what operating segments comprise Alcoa's business? Based on the reconciliation of ATOI to Net Income, what can you say about the quality of Alcoa’s income? Be specific in your answer.
The company primarily operates in four operating segments namely Alumina, Primary Metals, Global Rolled Products, and Engineered Products and Solutions. While seeing the reconcillation of ATOI with Net Income, we could sense that, ATOI is higher than Net Income. Net Income arrived is after adjusting the transactions like minority interest, corporate expenses, interest income etc. We may observe that, the non-operating income / expenses do have more impact on the operating income of Alcoa.
4.) How would you classify (from an economic perspective) the products sold by Alcoa? What external factors limit Alcoa’s flexibility in pricing those products? Which segments of Alcoa's operations do you think are most directly impacted by this pricing limitation?
5.) Given the pricing limitations on their products, on what basis does Alcoa compete? Why might that make it difficult to compete with rising entities in diverse global locations, such as United Company Rusal, that that has access to low-cost hydropower in Russia?