Analysis and Interpretation of Profitability Balance sheets and income statements for 3M Company follow. 3M COMPANY Consolidated Statements of Income
Analysis and Interpretation of Profitability
Balance sheets and income statements for 3M Company follow.
|Consolidated Statements of Income|
|For Years ended December 31 ($ millions)||2018||2017|
|Cost of sales||16,682||16,055|
|Selling, general and administrative expenses||7,602||6,626|
|Research, development and related expenses||1,821||1,870|
|Gain on sale of businesses||(547)||(586)|
|Total operating expenses||25,558||23,965|
|Other expense, net*||207||144|
|Income before income taxes||7,000||7,548|
|Provision for income taxes||1,637||2,679|
|Net income including noncontrolling interest||5,363||4,869|
|Less: Net income attributable to noncontrolling interest||14||11|
|Net income attributable to 3M||$ 5,349||$ 4,858|
*Interest expense, gross $350 million in 2018 and $322 million in 2017.
|Consolidated Balance Sheets|
|At December 31 ($ millions, except per share amount)||2018||2017|
|Cash and cash equivalents||$ 2,853||$ 3,053|
|Other current assets||349||266|
|Total current assets||13,709||14,277|
|Property, plant and equipment-net||8,738||8,866|
|Short-term borrowings and current portion of long-term debt||$ 1,211||$ 1,853|
|Accrued income taxes||243||310|
|Other current liabilities||2,775||2,709|
|Total current liabilities||7,244||7,687|
|Pension and postretirement benefits||2,987||3,620|
|3M Company shareholders' equity|
|Common stock, par value||$9||$9|
|Additional paid-in capital||5,643||5,352|
|Accumulated other comprehensive income (loss)||(6,866)||(7,026)|
|Total 3M Company shareholders' equity||9,796||11,563|
|Total liabilities and equity||$36,500||$37,987|
(a) Compute net operating profit after tax (NOPAT) for 2018. Assume that the combined federal and state statutory tax rate is 22%. (Round your answer to the nearest whole number.)
2018 NOPAT =Answer
(b) Compute net operating assets (NOA) for 2018 and 2017.
2018 NOA =Answer
2017 NOA =Answer
(c) Compute and disaggregate 3M’s RNOA into net operating profit margin (NOPM) and net operating asset turnover (NOAT) for 2018. Demonstrate that RNOA = NOPM × NOAT. (Round your answers to two decimal places. Do not round until your final answer. Do not use NOPM x NOAT to calculate RNOA.)
2018 RNOA =Answer
2018 NOPM =Answer
2018 NOAT =Answer
(d) Compute net nonoperating obligations (NNO) for 2018 and 2017. Confirm the relation: NOA = NNO + Total equity
2018 NNO =Answer
2017 NNO =Answer
(e) Compute return on equity (ROE) for 2018. (Round your answers to two decimal places. Do not round until your final answer.)
2018 ROE =Answer
(f) What is the nonoperating return component of ROE for 2018?(Round your answers to two decimal places.)
2018 nonoperating return =Answer
(g) Comment on the difference between ROE and RNOA. What inference can we draw from this comparison?
ROE > RNOA implies that 3M has taken on too much financial leverage.
ROE > RNOA implies that 3M is able to borrow money to fund operating assets that yield a return greater than its cost of debt.
ROE > RNOA implies that 3M's equity has grown faster than its NOA.
ROE > RNOA implies that 3M has increased its financial leverage during the period.