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)	2018	2017
Net sales	$14,810	$14,309
Operating expenses
Cost of sales	7,540	7,257
Selling, general and administrative expenses	3,436	2,995
Research, development and related expenses	1,821	1,870
Gain on sale of businesses	(547)	(586)
Total operating expenses	12,250	11,536
Operating income	2,560	2,773
Other expense, net*	94	65
Income before income taxes	2,466	2,708
Provision for income taxes	740	1,211
Net income including noncontrolling interest	1,726	1,497
Less: Net income attributable to noncontrolling interest	14	11
Net income attributable to 3M	$1,712	$1,486
*Interest expense, gross	$350	$322

3M COMPANY
Consolidated Balance Sheets
At December 31 ($ millions, except per share amount)	2018	2017
Current Assets
Cash and cash equivalents	$1,290	$1,380
Marketable securities	380	1,076
Accounts receivable	2,269	2,220
Total inventories	1,973	1,823
Prepaids	741	937
Other current assets	349	266
Total current assets	7,002	7,702
Property, plant and equipment-net	3,950	4,007
Goodwill	4,543	4,752
Intangible assets-net	1,201	1,327
Other assets	1,345	1,395
Total assets	$18,041	$19,183
Current liabilities
Short-term borrowings and current portion of long-term debt	$547	$838
Accounts payable	1,024	879
Accrued payroll	749	870
Accrued income taxes	243	310
Other current liabilities	1,254	1,224
Total current liabilities	3,817	4,121
Long-term debt	6,062	5,467
Pension and postretirement benefits	1,350	1,636
Other liabilities	3,010	2,962
Total liabilities	14,239	14,186
3M Company shareholders' equity
Common stock, par value	9	9
Additional paid-in capital	1,868	2,126
Retained earnings	18,367	17,680
Treasury stock	(13,391)	(11,701)
Accumulated other comprehensive income (loss)	(3,103)	(3,176)
Total 3M Company shareholders' equity	3,750	4,938
Noncontrolling interest	52	59
Total equity	3,802	4,997
Total liabilities and equity	$18,041	$19,183
Combined federal and state statutory tax rate	22%

a. Compute net operating profit after tax (NOPAT) for 2018. Assume that the combined federal and state statutory tax rate is 22%.

	NOPAT
	Answer?

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

	Year	NOA
	2018	Answer?
	2017	Answer?

c. Compute and disaggregate 3Ms RNOA into net operating profit margin (NOPM) and net operating asset turnover (NOAT) for 2018. Demonstrate that RNOA = NOPM NOAT.

	Numerator	Denominator	RNOA
	Answer?	Answer?
	Answer?	Answer?

	Numerator	Denominator	NOPM
	Answer?	Answer?
	Answer?	Answer?

	Numerator	Denominator	NOAT
	Answer?	Answer?
	Answer?	Answer?

	Ratio	Number
	NOPM	Answer?
	NOAT	Answer?
	RNOA

***RNOA may be different from first RNOA calculation due to rounding

d. Compute net nonoperating obligations (NNO) for 2018 and 2017. Confirm the relation: NOA = NNO + Total equity

	Year	NNO
	2018	Answer?
	2017	Answer?

	Year	NNO	Total equity	NOA
	2018	Answer?	Answer?
	2017	Answer?	Answer?

e. Compute return on equity (ROE) for 2018.

	Numerator	Denominator	ROE
	Answer?	Answer?
	Answer?	Answer?

f. What is the nonoperating return component of ROE for 2018?

	ROE	RNOA	Nonoperating component of ROE
	Answer	Answer?