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Analysis and Interpretation of Profitability Balance sheets and income statements for 3M Company follow. 3M COMPANY Consolidated Statements of Income For Years ended December 31

Analysis and Interpretation of Profitability
Balance sheets and income statements for 3M Company follow.

3M COMPANY
Consolidated Statements of Income
For Years ended December 31 ($ millions)20182017
Net sales$32,765$31,657
Operating expenses
Cost of sales16,68216,055
Selling, general and administrative expenses7,6026,626
Research, development and related expenses1,8211,870
Gain on sale of businesses(547)(586)
Total operating expenses25,55823,965
Operating income7,2077,692
Other expense, net*207144
Income before income taxes7,0007,548
Provision for income taxes1,6372,679
Net income including noncontrolling interest5,3634,869
Less: Net income attributable to noncontrolling interest1411
Net income attributable to 3M$ 5,349$ 4,858


*Interest expense, gross $350 million in 2018 and $322 million in 2017.

3M COMPANY
Consolidated Balance Sheets
At December 31 ($ millions, except per share amount)20182017
Current Assets
Cash and cash equivalents$ 2,853$ 3,053
Marketable securities3801,076
Accounts receivable5,0204,911
Total inventories4,3664,034
Prepaids741937
Other current assets349266
Total current assets13,70914,277
Property, plant and equipment-net8,7388,866
Goodwill10,05110,513
Intangible assets-net2,6572,936
Other assets1,3451,395
Total assets$36,500$37,987
Current liabilities
Short-term borrowings and current portion of long-term debt$ 1,211$ 1,853
Accounts payable2,2661,945
Accrued payroll749870
Accrued income taxes243310
Other current liabilities2,7752,709
Total current liabilities7,2447,687
Long-term debt13,41112,096
Pension and postretirement benefits2,9873,620
Other liabilities3,0102,962
Total liabilities26,65226,365
3M Company shareholders' equity
Common stock, par value$9$9
Additional paid-in capital5,6435,352
Retained earnings40,63639,115
Treasury stock(29,626)(25,887)
Accumulated other comprehensive income (loss)(6,866)(7,026)
Total 3M Company shareholders' equity9,79611,563
Noncontrolling interest5259
Total equity9,84811,622
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

($ millions)

(b) Compute net operating assets (NOA) for 2018 and 2017.
2018 NOA =Answer

($ millions)
2017 NOA =Answer

($ millions)

(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

($ millions)
2017 NNO =Answer

($ millions)

(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.

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