Alcoa Assignment Example | Topics and Well Written Essays - 1250 words

Alcoa - Assignment Example The calculated ROE is consequently higher though the assets utilization ratios are worse in 2007 than 2006. e) In the third quarter of 2007, the sales figures are lower than in the previous two quarters. This is due to lower third party sales of all product segments. This has impacted the ROE. Sales in the fourth quarter are at about the same level as the third quarter. The reported net profit for the quarter is higher due to the restructuring adjustment from the agreement to sell the packaging and consumer business of the company. f) The Balance Sheet data shows that the increase in assets is due to major additions in Properties, Plant and Equipment which suggest a major increase in production capacity. Current assets and in particular receivables and inventories are lower in 2007 compared to 2006. Data on capacity utilization would therefore be relevant. Question 2 – Net income of 3 Q- 07 compared to 3Q – 06 Alcoa’s sales in the 3Q – 2007 were significantly lower at $ 7,379 million compared to the previous two quarters which were both around $ 8,000 million. Since Net Profit Margin from sale of products is the main driver for the company’s ROE, the stock market would take the reduced sales figure as the signal of lower ROE for the year. In the previous quarters Alcoa’s stock prices must have gone up on the higher sales numbers from the corresponding quarters of the previous year. a) Primary metals with 21.4% of third party sales in 2007 and flat rolled products with 29.9% of sales make up the bulk of Alcoa’s business. Primary metals contributed 45.5% of Alcoa’s after-tax operating income (ATOI) in 2007. This segment is therefore the most important for Alcoa. Flat-rolled products had an ATOI of only 6.3% in