P3-44.L04, 5, 6, 7, 8 Analysis and Interpretation of Profita bility Balance sheets and income statements for 3M Company fo llow.

3M COMPANY Consolidated Statements of Income For Years Ended December 31 ($ millions) 2018 Net sales . .......... . .. .. .. . ...... . .. . .. .. • .. . .. ... .. $32,765 Operating expenses Cost of sales ........ . .. .. .. . .. .. .. .. .. . ... • .. •. . • .. ..

Selling, general and administrative expenses .. . . . . . . .. . ... .

Research, development and related expenses ... . . . ... . ... .

Gain on sale of businesses . .. . .. .... ... . ... . . .. . . . . . . . .

16,682 7,602 1,821

(547)

Total operating expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,558 Operating income. . . . . . . . . . . . . • . . . . • . . • . . . . • . . • . . • . . . . 7,207 Other expense, net* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 207 2017

$31 ,657 16,055 6,626 1,870

(586)

23,965 7,692 144 Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,000 7,548 Provision for income taxes. . . . . . . . . . . . . . . . . . . • . . . . . • . . . . 1,637 2,679 Net income including noncontroll ing interest . . . . . . . . . . . . . . . . 5,363 Less: Net income attributable to noncontrolling interest. ... . ... 14 Net income attributable to 3M .. . .. .. .. .. .. .. .. . . ... . ... .. $ 5,349

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

4,869 11

$ 4,858 3M COMPANY Consolldated Balance Sheets Cash and cash equivalents ...................................... .
Marketable securities ................•.......•..................
Accounts receivable ...... . ....... • ..•.. • ....•..................
Tot al inventories ....................•....... • ..................
P repaids ............... . .......• ...... ....• ....... ...........
Ot her current assets ................ ....... . ................... .
Total current assets .............................•.. ... . .... . ...
Propert y , plant and equipment, net ...................•.. • .. • ....•...
Goodwill ........................................•.. • .. • ....•...
Intangible assets-net ............................. . .....•........
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..... •.. ..... •. ..
Total assets ................................................... .
Current liabilities Short-term borrowings and current portion of long-term debt ............ .
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ................ .
Accrued payroll ................•..•.. • ...................... . . •
Accrued income taxes ...... ........ • .. • .........................
Other current liabilities ............................... • ..........
Total current liabilities ............ .............. . ..........•.....
L ong-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..............•..
Pension and postretirement benefits ................................ .
Other liabilities ................................................. .
T otal liabilities ......................•............................
3M Compan y shareholders' equity Common stock par value . .......... • ..•....•.. • ...................
Additional paid-in capital. ... . .... • ..•....... . ......................
Ret ained earnings ................ • .......•......................
Treasury stock ................................................. .
Accumulated other comprehensive income (loss) ...... . ............... .
Total 3M Company shareholders' equity ......................•..•....
Noncontrolling interest ............................ • ....... •.. •....
Total equity .................................................... .
Total liabilities and equity ......................................... .
Required 2018 $ 2,853 380 5,020 4,366 741 349 13,709 8,738 10,051 2,657 1,3 45 ---
$36,500 $ 1,211 2,266 749 243 2,775 7,244 13,411 2,987 3,010 26,652 9 5,643 40,636 (29,626)
(6,866)
9,796 52 9,848 $36,500 2017 $ 3,053 1.D76 4,911 4,034 937 266 14,277 8,866 10,5 13 2,936 1,395 $37,987 $ 1,853 1 ,945 870 310 2 ,709 7,687 12,096 3,620 2,962 26,365 9 5 ,352 39, 115 (25,887)
(7,026)
11 ,563 59 11,622 ---
$37,987

a. Compute net operating profit after t ax (NO PAT) for 2018. Assume that the combined federal a nd state st atutory tax rate is 22%.

b. Compute ne t operati ng assets (NOA) for 20 18 and 20 17.

c. Compute and disaggregate 3M's RNOA into net operat ing profi t margin (NOPM) and net operating a sset tu rnover (NOAT) for 2018. Demons trate that RNOA = NOPM x NOAT.

d. Compute net nonoperating obligations (NNO) for 2018 and 2017. Con fi rn1 the re lation: NOA= NNO +Total e qui ty.

e. Compute re t urn on equ ity (ROE) for 2018.
f What is the nonoperating return component of ROE for 2018?
g. Comment on the difference between ROE and RNOA. What in ference can we draw fr o m t hi s compa rison ?