Alcoa

Alcoa is a producer of bauxite, alumina, and aluminum.

Aluminum prices are cyclical. Alcoa’s earnings would be cyclical given the strong correlation between aluminum prices and Alcoa's gross profitability.

Alcoa could generate significant operating profits under various aluminum price scenarios. However, over the past 9 years, Alcoa had a very heavy tax burden. There were taxes even if it was loss-making. During profitable years, tax rates ranged from 45 % to 108%.

There are two ways to explain the high tax rates.

Based on the tax reconciliation, the high tax rate is due to large changes in the valuation allowances.

Another explanation is that the high tax rate is due to arithmetic issues. The losses in the Domestic operations resulted in lower overall profits. The tax rate is then magnified.

To reduce the high effective tax rate, Alcoa needs to focus on changes in valuation allowances and make the Domestic operations profitable.