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Alcoa Cash Flow Reaches New Quarterly High In 4Q14


Jan. 26 2015, Updated 3:42 p.m. ET

Alcoa cash flow report for 4Q14

Previously in this series, we discussed the financial performance of Alcoa’s (AA) various business segments. Let’s look at the company’s 4Q14 cash flow. Cash flow, especially operating cash flow, is a key metric that investors in the metals and mining sector should track.

Rio Tinto (RIO), BHP Billiton (BHP), and Century Aluminum (CENX) are some of the major companies in the metals and mining space. The SPDR S&P Metals and Mining ETF (XME) can offer investors diversified exposure to this sector.

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Record cash flow

The above chart shows Alcoa’s operating cash flow, representing the cash flow from a company’s core operations. This is the most important cash flow metric that investors should track.

Alcoa’s operating cash flow was ~$1.5 billion in 4Q14, the company’s highest reported quarterly cash flow. Alcoa’s free cash flow in the fourth quarter was ~$1 billion. Free cash flow equals operating cash flow minus capital expenditures. It represents how much cash the company retains after financing and investing activities.

Alcoa closed 2014 with $1.9 billion cash on hand, which will help the company in 2015 as well.

Credit positive

The higher cash flow should also help improve Alcoa’s credit ratings. Alcoa currently has a non-investment grade rating, possibly the result of higher leverage and low operating cash flow. Plus, Alcoa is working on improving its leverage ratios, although it missed its internal targets for 2014.

Next, let’s look at the sensitivity of Alcoa’s earnings to various market factors.


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