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 $32,765 $31,657 16,682 16,055 7,602 6,626 1,821 1,870 (547) (586) 25,558 23,965 7,207 7,692 Income before income taxes Provision for income taxes Net income including noncontrolling interest Less: Net income attributable to noncontrolling interest Net income attributable to 3M *Interest expense, gross 3M COMPANY Consolidated Balance Sheets 207 144 7,000 7,548 1,637 2,679 5,363 4,869 14 11 $5,349 $4,858 $350 $322 At December 31 ($ millions, except per share amount) Current Assets 2018 2017 Cash and cash equivalents Marketable securities Accounts receivable Total inventories Dropside 71F $2,853 $3,053 380 1,076 5,020 4,911 4,366 4,034 743 927 Marketable securities Accounts receivable Total inventories Prepaids Other current assets Total current assets Property, plant and equipment-net Goodwill Intangible assets-net Other assets Total assets 380 1,076 5,020 4,911 4.366 4,034 741 937 349 266 13,709 14,277 8,738 8,866 10,051 10,513 2,657 2,936 1,345 1,395 $36,500 $37.987 Current liabilities Short-term borrowings and current portion of long-term debt $1,211 $1,853 Accounts payable 2.266 1.945 Accrued payroll 749 870 Accrued income taxes 243 310 Other current liabilities 2,775 2,709 Total current liabilities 7,244 7,687 Long-term debt 13,411 12.096 Pension and postretirement benefits 2,987 3,620 Other liabilities 3,010 2.962 Total liabilities 26,652 26,365 3M Company shareholders' equity Common stock, par value Additional paid-in capital Retained earnings 9 9 5,643 5,352 40,636 39,115 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 (29,626) (25,887) (6,866) (7,026) 9,796 11,563 52 59 9,848 11,622 $36,500 $37.987 22% Combined federal and state statutory tax rate $36.500 $37.987 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-NOPN Numerator Numerator Denominator RNOA Denominator NOPM Numerator Denominator NOAT Ratio Number NOPM NOAT 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 2018 S 2017 S NNO Year 2018 5 2017 NNO Total equity NOA 0 NOAT RNOA 0% ***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 ec Year NNO 2018 $ 2017 $ Year 2018 $ 2017 $ NNO Total equity $ NOA $ 0 0 e. Compute return on equity (ROE) for 2018. Numerator 0 $ Denominator ROE f. What is the nonoperating return component of ROE for 2018? Check ROE RNOA Nonoperating component of ROE 0%