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Alcoa Inc (NYSE:AA)
Financial Strength Rank
6 (As of Jun. 2014)

Alcoa Inc has the Financial Strength Rank of 6.

GuruFocus Financial Strength Rank measures how strong a company’s financial situation is. It is based on these factors:

• 1. The debt burden that the company has as measured by its interest coverage (current year). The higher, the better.
• 2. Debt to revenue ratio. The lower, the better.
• 3. Altman Z-score.

Alcoa Inc's interest coverage for the quarter that ended in Jun. 2014 was 3.02. Alcoa Inc's debt to revenue ratio for the quarter that ended in Jun. 2014 was 1.38. As of today, Alcoa Inc's Altman Z-score is 1.34.


Definition

GuruFocus Financial Strength Rank measures how strong a company’s financial situation is. It is based on these factors

A company ranks high with financial strength is likely to withstand any business slowdowns and recessions.

1. The debt burden that the company has as measured by its interest coverage (current year). The higher, the better.

Interest Coverage is a ratio that determines how easily a company can pay interest expenses on outstanding debt. It is calculated by dividing a company’s Operating Income (EBIT) by its Interest Expense:

Alcoa Inc's interest expense for the three months ended in Jun. 2014 was $-105 Mil. Its operating income for the three months ended in Jun. 2014 was $317 Mil. And its Long-Term Debt for the quarter that ended in Jun. 2014 was $7,612 Mil.

Alcoa Inc's Interest Coverage for the quarter that ended in Jun. 2014 is

Interest Coverage=-1*Operating Income (Q: Jun. 2014 )/Interest Expense (Q: Jun. 2014 )
=-1*317/-105
=3.02

The higher the ratio, the stronger the company’s financial strength is.

2. Debt to revenue ratio. The lower, the better.

Alcoa Inc's Debt to Revenue Ratio for the quarter that ended in Jun. 2014 is

Debt to Revenue Ratio=Total Debt (Q: Jun. 2014 ) / Revenue (Q: Jun. 2014 )
=(Current Portion of Long-Term Debt + Long-Term Debt) / Revenue
=(443 + 7612) / 5836
=1.38

3. Altman Z-score.

Z-Score model is an accurate forecaster of failure up to two years prior to distress. It can be considered the assessment of the distress of industrial corporations.

The zones of discrimination were as such:

When Z-Score is less than 1.81, it is in Distress” Zones.
When Z-Score is greater than 2.99, it is in Safe Zones.
When Z-Score is between 1.81 and 2.99, it is in Grey” Zones.

Alcoa Inc has a Z-score of 1.34, indicating it is in Distress Zones. This implies bankrupcy possibility in the next two years.

* All numbers are in millions except for per share data and ratio. All numbers are in their own currency.


Explanation

The maximum rank is 10. Companies with rank 7 or higher will be unlikely to fall into distressed situations. Companies with rank of 3 or less are likely in financial distress.

Alcoa Inc has the Financial Strength Rank of 6.


Related Terms

Profitability Rank, Altman Z-score, Interest Coverage, Operating Income, Interest Expense, Current Portion of Long-Term Debt, Long-Term Debt, Revenue

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