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) Net sales Operating expenses Cost of sales Selling, general and administrative expenses Research, development and related expenses Gain on sale of businesses Total operating expenses Operating income Other expense, net* 2018 2017 $23,165 $22,381 11.794 11,351 5,375 4,685 1,821 1,870 (547) (586) 18,443 17,320 4,722 5,061 146 102 Income before income taxes 4,576 4,959 Provision for income taxes 1,157 1,894 Net income including noncontrolling interest 3,419 3,065 Less: Net income attributable to noncontrolling interest 14 11 Net income attributable to BM $3,405 $3,054 *Interest expense, gross $350 $322 3M COMPANY Consolidated Balance Sheets At December 31 ($ millions, except per share amount) Current Assets 2018 2017 Cash and cash equivalents Marketable securities $2,017 $2,158 380 1,076 Accounts receivable Total inventories Prepaids 3,549 3.472 3,087 2,852 741 937 B49 266 Other current assets Total current assets 10.123 10,761 Property, plant and equipment-net 6.178 6.268 Goodwill 7.106 7,433 Intangible assets-net 1,878 2,076 Other assets 1,845 1,395 Total assets $26.630 $27,933 Current liabilities Short-term borrowings and current portion of long-term debt $856 $1,310 Accounts payable 1,602 1,375 Accrued payroll 749 870 Accrued income taxes 243 310 Other current liabilities 1,962 1,915 Total current liabilities 5.412 5,780 Long-term debt 9,482 8,552 Pension and postretirement benefits 2,112 2,559 Other liabilities 3,010 2,962 Total liabilities 20.016 19,853 3M Company shareholders' equity Common stock, par value Additional paid-in capital 19 Q 3,623 3,627 Retained earnings 28,730 27,654 Treasury stock Accumulated other comprehensive income (loss) Total 3M Company shareholders' equity Noncontrolling interest Total equity Total liabilities and equity Combined federal and state statutory tax rate (20,946) (18.302) (4,854) (4.967) 6,562 8.021 52 59 6.614 8.080 $26.630 $27.933 22% a. Compute net operating profit after tax (NOPAT) for 2018. Assume that the combined federal and state statutory tax rate is 22%. NOPAT b. Compute net operating assets (NOA) for 2018 and 2017 Year 2018 $ 2017 $ NOA 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. Numerator Denominator RNOA $ Numerator Denominator NOPM Numerator Denominator NOAT Ratio Number NOPM NOAT RNOA 096 ***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 $ 2017 $ Year 2018 $ NNO Total equity NOA 0 $ $ 0 2017 S $ $ Search ***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 2018 $ NNO 2017 $ Year NNO 2018 $ Total equity $ NOA $ 0 2017 $ $ $ 0 e. Compute return on equity (ROE) for 2018. $ Numerator $ Denominator ROE f. What is the nonoperating return component of ROE for 2018? ROE RNOA 96 96 Nonoperating component of ROE 096 Check 96