Alcoa – Filing Season Finds: Friday, March 17

Our latest forensic accounting red flag is from an industrial bellwether whose balance sheet significantly understates its invested capital.

We pulled this highlight from yesterday’s research of 64 10-K filings, from which our robo-analyst technology collected 8,054 data points. Our analyst team used this data to make 1,318 forensic accounting adjustments with a dollar value of $55 billion. The adjustments were applied as follows:

  • 534 income statement adjustments with a total value of $5 billion
  • 566 balance sheet adjustments with a total value of $25 billion
  • 218 valuation adjustments with a total value of $25 billion

Figure 1: Filing Season Diligence

What can past market crashes teach us about the current one?

The markets have largely recovered since the March selloff, but most would agree we're not out of the woods yet. The COVID-19 pandemic isn't close to being over, so it seems that volatility is here to stay, at least until the pandemic becomes less severe. Q2 2020 hedge fund letters, conferences and more At the Read More


We believe this research is necessary to close the gap between the suitability and fiduciary standard of investment advice services.

Today’s Forensic Accounting Needle In A Haystack Is For Industrial Investors

Analyst Allen L. Jackson found an unusual item yesterday in Alcoa’s (AA) 10-K.

On page 128, Alcoa includes a table detailing its accumulated other comprehensive loss of $3.8 billion. That number represents Alcoa’s accumulated losses on non-shareholder investments such as pensions, foreign currency translation, and hedging activities.

These losses decrease Alcoa’s reported net assets. We want to hold management responsible for all the capital invested in the company, so we add back that $3.8 billion to our calculation of invested capital. Without making this adjustment, AA’s average invested capital would have been $14.4 billion in 2016. With the adjustment, its average invested capital was $17.1 billion.

Few analysts pay close attention to other comprehensive income (loss), but it’s an important item if you want to accurately calculate return on invested capital (ROIC).

This article originally published on March 17, 2017.

Disclosure: David Trainer, Allen L. Jackson, and Sam McBride receive no compensation to write about any specific stock, sector, style, or theme.