Question
ACCT 551 Module 4 Analysis and Interpretation of Profitability Balance sheets and income statements for 3M Company follow. Net sales $26,662 $23,123 $25,269 Operating expenses
ACCT 551 Module 4
Analysis and Interpretation of Profitability Balance sheets and income statements for 3M Company follow.
Net sales | $26,662 | $23,123 | $25,269 |
Operating expenses | |||
Cost of sales | 13,831 | 12,109 | 13,379 |
Selling, general and administrative expenses | 5,479 | 4,907 | 5,245 |
Research, development and related expenses | 1,434 | 1,293 | 1,404 |
Loss/(gain) from sale of business | -- | -- | 23 |
Total operating expenses | 20,744 | 18,309 | 20,051 |
Operating income | 5,918 | 4,814 | 5,218 |
Interest expenses and income | |||
Interest expense | 201 | 219 | 215 |
Interest income | (38) | (37) | (105) |
Total interest expense | 163 | 182 | 110 |
Income before income taxes | 5,755 | 4,632 | 5,108 |
Provision for income taxes | 1,592 | 1,388 | 1,588 |
Net income including noncontrolling interest | 4,163 | 3,244 | 3,520 |
Less: Net income attributable to noncontrolling interest | 78 | 51 | 60 |
Net income | $ 4,085 | $ 3,193 | $ 3,460 |
Assets | ||
Current Assets | ||
Cash and cash equivalents | $ 3,377 | $ 3,040 |
Marketable securities-current | 1,101 | 744 |
Accounts receivable-net | 3,615 | 3,250 |
Inventories | ||
Finished goods | 1,476 | 1,255 |
Work in process | 950 | 815 |
Raw materials and supplies | 729 | 569 |
Total inventories | 3,155 | 2,639 |
Other current assets | 967 | 1,122 |
Total current assets | 12,215 | 10,795 |
Marketable securities-noncurrent | 540 | 825 |
Investments | 146 | 103 |
Property, plant and equipment | 20,253 | 19,440 |
Less: Accumulated depreciation | (12,974) | (12,440) |
Property, plant and equipment-net | 7,279 | 7,000 |
Goodwill | 6,820 | 5,832 |
Intangible assets-net | 1,820 | 1,342 |
Prepaid pension benefits | 74 | 78 |
Other assets | 1,262 | 1,275 |
Total assets | $ 30,156 | $ 27,250 |
Liabilities | ||
Current liabilities | ||
Short-term borrowings and current portion of long-term debt | $ 1,269 | $ 613 |
Accounts payable | 1,662 | 1,453 |
Accrued payroll | 778 | 680 |
Accrued income taxes | 358 | 252 |
Other current liabilities | 2,022 | 1,899 |
Total current liabilities | 6,089 | 4,897 |
Long-term debt | 4,183 | 5,097 |
Pension and postretirement benefits | 2,013 | 2,227 |
Other liabilities | 1,854 | 1,727 |
Total liabilities | 14,139 | 13,948 |
Equity | ||
3M Company shareholders' equity: Common stock, par value $.01 per share; | 9 | 9 |
Additional paid-in capital | 3,468 | 3,153 |
Retained earnings | 25,995 | 23,753 |
Treasury stock | (10,266) | (10,397) |
Accumulated other comprehensive income (loss) | (3,543) | (3,754) |
Total 3M Company shareholders' equity | 15,663 | 12,764 |
Noncontrolling interest | 354 | 538 |
Total equity | 16,017 | 13,302 |
Total liabilities and equity | $ 30,156 | $ 27,250 |
(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 =Answer
($ millions)
(b) Compute net operating assets (NOA) for 2010 and 2009. Treat noncurrent Investments as a nonoperating item.
2010 NOA =
Answer
($ millions)
2009 NOA =
Answer
($ millions)
(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 =
Answer
%
2010 NOPM =
Answer
%
2010 NOAT =
Answer
(d) Compute net nonoperating obligations (NNO) for 2010 and 2009.
2010 NNO =
Answer
($ millions)
2009 NNO =
Answer
($ millions)
(e) Compute return on equity (ROE) for 2010. (Round your answers to two decimal places. Do not round until your final answer.)
2010 ROE =
Answer
%
(f) What is the nonoperating return component of ROE for 2010? (Round your answers to two decimal places.)
2010 nonoperating return =
Answer
%
(g) Which of the following statements reflects the best inference we can draw from the difference between 3M's ROE and RNOA?
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.
Question 2
Partially correct 0.56 points out of 5.00 Flag question
Question textAnalysis and Interpretation of Profitability Balance sheets and income statements for Target Corporation follow.
Sales | $ 61,471 | $ 57,878 | $ 51,271 |
Credit card revenues | 1,896 | 1,612 | 1,349 |
Total revenues | 63,367 | 59,490 | 52,620 |
Cost of sales | 41,895 | 39,399 | 34,927 |
Selling, general and administrative expenses | 13,704 | 12,819 | 11,185 |
Credit card expenses | 837 | 707 | 776 |
Depreciation and amortization | 1,659 | 1,496 | 1,409 |
Earnings before interest and income taxes | 5,272 | 5,069 | 4,323 |
Net interest expense | 647 | 572 | 463 |
Earnings before income taxes | 4,625 | 4,497 | 3,860 |
Provisions for income taxes | 1,776 | 1,710 | 1,452 |
Net earnings | $ 2,849 | $ 2,787 | $ 2,408 |
Assets | ||
Cash and cash equivalents | $ 2,450 | $ 813 |
Credit card receivables | 8,054 | 6,194 |
Inventory | 6,780 | 6,254 |
Other current assets | 1,622 | 1,445 |
Total current assets | 18,906 | 14,706 |
Property and equipment | ||
Land | 5,522 | 4,934 |
Buildings and improvements | 18,329 | 16,110 |
Fixtures and equipment | 3,858 | 3,553 |
Computer hardware and software | 2,421 | 2,188 |
Construction-in-progress | 1,852 | 1,596 |
Accumulated depreciation | (7,887) | (6,950) |
Property and equipment, net | 24,095 | 21,431 |
Other noncurrent assets | 1,559 | 1,212 |
Total assets | $ 44,560 | $ 37,349 |
Liabilities and shareholders' investment | ||
Accounts payable | $ 6,721 | $ 6,575 |
Accrued and other current liabilities | 3,097 | 3,180 |
Current portion of long-term debt and notes payable | 1,964 | 1,362 |
Total current liabilities | 11,782 | 11,117 |
Long-term debt | 15,126 | 8,675 |
Deferred income taxes | 470 | 577 |
Other noncurrent liabilities | 1,875 | 1,347 |
Shareholders' investment | ||
Common stock | 68 | 72 |
Additional paid-in-capital | 2,656 | 2,387 |
Retained earnings | 12,761 | 13,417 |
Accumulated other comprehensive income (loss) | (178) | (243) |
Total shareholders' investment | 15,307 | 15,633 |
Total liabilities and shareholders' equity | $ 44,560 | $ 37,349 |
(a) Compute Target's quick ratio and current ratio for 2008 and 2007.(Round your answers to two decimal places.)
2008 current ratio = Answer
2007 current ratio =
Answer
2008 quick ratio =
Answer
2007 quick ratio =
Answer
(b) Compute Target's time interest earned and its liabilities-to-equity ratios for 2008 and 2007. (Round your answers to two decimal places.)
2008 times interest earned = Answer
2007 times interest earned =
Answer
2008 liabilities-to-equity =
Answer
2007 liabilities-to-equity =
Answer
Comment on any observed trends. Which of the following statements best describes any trend in Target's liabilities-to-equity ratios?
The decrease in Target's liabilities-to-equity ratio remained constant.Target's liabilities-to-equity ratio increased, reflecting the increased liability load.Target's liabilities-to-equity ratio increased during the year primarily due to an increase in its equity.Target's liabilities-to-equity ratio decreased due to an increase in its equity.
Question 3
Partially correct 0.38 points out of 5.00 Flag question
Question textAnalysis and Interpretation of Profitability Balance sheets and income statements for Best Buy Co., Inc. follow.
Revenue | $ 50,272 | $ 49,694 | $ 45,015 |
Cost of goods sold | 37,611 | 37,534 | 34,017 |
Restructuring charges - cost of goods sold | 24 | -- | -- |
Gross Profit | 12,637 | 12,160 | 10,998 |
Selling, general and administrative expenses | 10,325 | 9,873 | 8,984 |
Restructuring charges | 198 | 52 | 78 |
Goodwill and tradename impairment | -- | -- | 66 |
Operating income | 2,114 | 2,235 | 1,870 |
Other income (expense) | |||
Investment income and other | 51 | 54 | 35 |
Investment impairment | -- | -- | (111) |
Interest expense | (87) | (94) | (94) |
Earnings before income tax expense and equity in income of affiliates | 2,078 | 2,195 | 1,700 |
Income tax expense | 714 | 802 | 674 |
Equity in income of affiliates | 2 | 1 | 7 |
Net earnings including noncontrolling interest | 1,366 | 1,394 | 1,033 |
Net income attributable to noncontrolling interest | (89) | (77) | (30) |
Net income attributable to Best Buy Co., Inc. | $ 1,277 | $ 1,317 | $ 1,003 |
Assets | ||
Current assets | ||
Cash and cash equivalents | $ 1,103 | $ 1,826 |
Short-term investments | 22 | 90 |
Receivables | 2,348 | 2,020 |
Merchandise inventories | 5,897 | 5,486 |
Other current assets | 1,103 | 1,144 |
Total current assets | 10,473 | 10,566 |
Property and equipment | ||
Land and buildings | 766 | 757 |
Leasehold improvements | 2,318 | 2,154 |
Fixtures and equipment | 4,701 | 4,447 |
Property under capital lease | 120 | 95 |
7,905 | 7,453 | |
Less: Accumulated depreciation | 4,082 | 3,383 |
Property and equipment, net | 3,823 | 4,070 |
Goodwill | 2,454 | 2,452 |
Tradenames, net | 133 | 159 |
Customer relationships, net | 203 | 279 |
Equity and other investments | 328 | 324 |
Other noncurrent assets | 435 | 452 |
Total assets | $ 17,849 | $ 18,302 |
Liabilities and equity | ||
Current liabilities | ||
Accounts payable | $ 4,894 | $ 5,276 |
Unredeemed gift card liabilities | 474 | 463 |
Accrued compensation and related expenses | 570 | 544 |
Accrued liabilities | 1,471 | 1,681 |
Accrued income taxes | 256 | 316 |
Short-term debt | 557 | 663 |
Current portion of long-term debt | 441 | 35 |
Total current liabilities | 8,663 | 8,978 |
Long-term liabilities | 1,183 | 1,256 |
Long-term debt | 711 | 1,104 |
Equity | ||
Best Buy Co., Inc. Shareholders' equity | ||
Preferred stock, $1.00 par value | -- | -- |
Common stock, $0.10 par value | 39 | 42 |
Additional paid-in capital | 18 | 441 |
Retained earnings | 6,372 | 5,797 |
Accumulated other comprehensive income (loss) | 173 | 40 |
Total Best Buy Co., Inc. shareholders' equity | 6,602 | 6,320 |
Noncontrolling interest | 690 | 644 |
Total equity | 7,292 | 6,964 |
Total liabilities and equity | $ 17,849 | $ 18,302 |
(a) Compute the following for Best Buy Co.. Hint: RNOA is 18.86% and NOPAT is $1,389. Rounding instructions: Do not round until your final answer. Round FLEV and NCI ratio four decimal places. Round Spread and NNEP two decimal places. Remember to use negative signs in answers when appropriate. 2011NNO (Net non-operating obligations) =Answer
($ millions)
2010NNO (Net non-operating obligations) =
Answer
($ millions)
2011NNE (Net non-operating expense) =
Answer
($ millions)
2011NNEP (Net nonoperating expense percent) =
Answer
%
2011FLEV =
Answer
2011Spread =
Answer
%
2011NCI ratio =
Answer
(b) Assume that Best Buy Co.'s return on equity (ROE) for 2011 is 19.76% and its return on net operating assets (RNOA) is 18.86%. Confirm computations to yield the relation: ROE = [RNOA + (FLEV X Spread)] X NCI ratio.
2011 ROE =
Answer
% = [
Answer
%+(
Answer
X
Answer
%)] X
Answer
(c) What do your computations of the nonoperating return in parts (a) and (b) imply about the company's use of borrowed funds
Best Buy is able to borrow funds and invest the proceeds in operating assets yielding a return in excess of the cost of its debt which results in a benefit to stockholders.Best Buy is able to borrow funds, however, is unable to invest the proceeds in operating assets to yield a return in excess of the cost of its debt which results in a loss for stockholders.Best Buy is heavily debt financed and unable to earn a sufficient return with the proceeds to cover the cost of its debt, which results in a loss to stockholders.Best Buy is able to borrow fund and invest the proceeds in operating assets yielding a return in excess of the cost of its debt. However, it results in a loss to its stockholders.
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