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GuruFocus has detected 2 Warning Signs with Alcoa Corp $AA.
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Alcoa Corp (NYSE:AA)
Gross Profit
$1,314 Mil (TTM As of Sep. 2016)

Alcoa Corp's gross profit for the three months ended in Sep. 2016 was $365 Mil. Alcoa Corp's gross profit for the trailing twelve months (TTM) ended in Sep. 2016 was $1,314 Mil.

Gross Margin is calculated as gross profit divided by its revenue. Alcoa Corp's gross profit for the three months ended in Sep. 2016 was $365 Mil. Alcoa Corp's revenue for the three months ended in Sep. 2016 was $2,329 Mil. Therefore, Alcoa Corp's Gross Margin for the quarter that ended in Sep. 2016 was 15.67%.

Alcoa Corp had a gross margin of 15.67% for the quarter that ended in Sep. 2016 => No sustainable competitive advantage

During the past 3 years, the highest Gross Margin of Alcoa Corp was 19.77%. The lowest was 12.19%. And the median was 19.29%.


Definition

Gross Profit is the different between the sale prices and the cost of buying or producing the goods.

Alcoa Corp's Gross Profit for the fiscal year that ended in Dec. 2015 is calculated as

Gross Profit (A: Dec. 2015 )=Revenue - Cost of Goods Sold
=11199 - 9039
=2,160

Alcoa Corp's Gross Profit for the quarter that ended in Sep. 2016 is calculated as

Gross Profit (Q: Sep. 2016 )=Revenue - Cost of Goods Sold
=2329 - 1964
=365

Alcoa Corp Gross Profit for the trailing twelve months (TTM) ended in Sep. 2016 was 294 (Dec. 2015 ) + 270 (Mar. 2016 ) + 385 (Jun. 2016 ) + 365 (Sep. 2016 ) = $1,314 Mil.

Gross Profit is the numerator in the calculation of Gross Margin:

Alcoa Corp's Gross Margin for the quarter that ended in Sep. 2016 is calculated as

Gross Margin (Q: Sep. 2016 )=Gross Profit (Q: Sep. 2016 ) / Revenue (Q: Sep. 2016 )
=(Revenue - Cost of Goods Sold) / Revenue
=365 / 2329
=15.67 %

* All numbers are in millions except for per share data and ratio. All numbers are in their local exchange's currency.

A positive Gross Profit is only the first step for a company to make a net profit. The gross profit needs to be big enough to also cover related labor, equipment, rental, marketing/advertising, research and development and a lot of other costs in selling the products.


Explanation

Warren Buffett believes that firms with excellent long term economics tend to have consistently higher margins.

Durable competitive advantage creates a high Gross Margin because of the freedom to price in excess of cost. Companies can be categorized by their Gross Margin

1. Greater than 40% = Durable competitive advantage
2. Less than 40% = Competition eroding margins
3. Less than 20% = no sustainable competitive advantage
Consistency of Gross Margin is key

Alcoa Corp had a gross margin of 15.67% for the quarter that ended in Sep. 2016 => No sustainable competitive advantage


Related Terms

Cost of Goods Sold, Gross Margin, Revenue


Historical Data

* All numbers are in millions except for per share data and ratio. All numbers are in their local exchange's currency.

Alcoa Corp Annual Data

Dec13Dec14Dec15
Gross_Profit 00000001,5332,5992,160

Alcoa Corp Quarterly Data

Dec13Dec14Mar15Jun15Sep15Dec15Mar16Jun16Sep16
Gross_Profit 01,1680814612440294270385365
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