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Analysis and Interpretation of Profitability Balance sheets and income statements for 3M Company follow. Consolidated Statements of Income Years ended December 31 ($ millions) Net sales Operating expenses Cost of sales Selling, general and administrative expenses Research, development and related expenses Loss/(gain) from sale of business Total operating expenses Operating income Interest expenses and income Interest expense Interest income Total interest expense Income before income taxes Provision for income taxes Net income including noncontrolling interest Less: Net income attributable to noncontrolling interest Net income 2010 2009 2008 $26,662 $23,123 $25,269 13,831 12,109 13,379 5,479 4,907 5,245 1,434 1,293 1,404 23 20,744 18,309 20,051 5,918 4,814 5,218 ww 201 (38) 163 5,755 4,632 1,592 1,388 4,163 3,244 78 51 $4,085 $3,193 219 (37) 182 215 (105) 110 5,108 1,588 3,520 60 $3,460 Assets Current Assets Cash and cash equivalents Marketable securities-current Accounts receivable-net Inventories Finished goods Work in process Raw materials and supplies Total inventories Other current assets Total current assets Consolidated Balance Sheets ($ millions) Marketable securities-noncurrent Investments Property, plant and equipment Less: Accumulated depreciation Property, plant and equipment-net Goodwill Intangible assets-net Prepaid pension benefits. Other assets Total assets 2010 2009 $3,377 $3,040 1,101 3,615 1,476 950 729 3,155 967 744 3,250 1,255 815 569 2,639 1,122 10,795 825 103 12,215 540 146 20,253 19,440 (12,974) (12,440) 7,279 7,000 6,820 5,832 1,820 1,342 74 78 1,262 1,275 $30,156 $27,250 Total assets Liabilities 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 Long-term debt Pension and postretirement benefits Other liabilities Total liabilities Equity 3M Company shareholders' equity: Common stock, par value $.01 per share; Additional paid-in capital Retained earnings Treasury stock Accumulated other comprehensive income (loss) Total 3M Company shareholders' equity Noncontrolling interest Total equity Total liabilities and equity TIEVE TETS $30,156 $27,250 $1,269 $613 1,662 1,453 778 680 358 252 2,022 1,899 6,089 4,897 4,183 5,097 2,013 2,227 1,854 1,727 14,139 13,948 9 3,468 3,153 25,995 23,753 (10,266) (10,397) (3,543) (3,754) 15,663 12,764 354 538 16,017 13,302 $30,156 $27,250 9 (a) Compute net operating profit after tax (NOPAT) for 2010. Assume that the combined federal and statutory rate is: 37.0% (Round your answer to the nearest whole number.) 2010 NOPAT 0 ($ millions) (b) Compute net operating assets (NOA) for 2010 and 2009. Treat noncurrent Investments as a nonoperating item. 2010 NOA 0 ($ millions) (5 millions) 2009 NOA 0 (c) Compute 3M's RNOA, net operating profit margin (NOPM) and net operating asset turnover (NOAT) for 2010. (Round your answers to two decimal places. Do not round until your final answer. Do not use NOPM x NOAT to calculate RNOA.) 2010 RNOA 0 2010 NOPM 0 2010 NOAT 0 (d) Compute net nonoperating obligations (NNO) for 2010 and 2009. 2010 NNO 0 ($ millions) ($ millions) 2009 NNO 0 (e) Compute return on equity (ROE) for 2010. (Round your answers to two decimal places. Do not round until your final answer.) 2010 ROE 0 %6 (f) What is the nonoperating return component of ROE for 2010? (Round your answers to two decimal places.) 2010 nonoperating return 0 (g) Which of the following statements reflects the best inference we can draw from the difference between 3M's ROE and RNOA? OROERNOA implies that 3M has taken on too much financial leverage. CROERNOA implies that 3M is able to borrow money to fund operating assets that yield a return greater than its cost of debt. CROERNOA implies that 3M's equity has grown faster than its NOA. CROERNOA implies that 3M has increased its financial leverage during the period.