Analysis and Interpretation of Profitability

Balance sheets and income statements for 3M Company follow.

Consolidated Statements of IncomeYears ended December 31 ($ millions)201220112010Net sales$29,904$ 29,611$ 226,662Operating expensesCost of sales15,68515,69313,831Selling, general and administrative expenses6,1026,1705,479Research, development and related expenses1,6341,5701,434------Total operating expenses23,42123,43320,744Operating income6,4836,1785,918Interest expenses and incomeInterest expense171186201Interest income(39)(39)(38)Total interest expense--net132147163Income before income taxes6,3516,0315,755Provision for income taxes1,8401,6741,592Net income including noncontrolling interest$4,511$4,357$4,163Less: Net income attributable to noncontrolling interest677478Net income attributable to 3M$ 4,444$ 4,283$ 4,085

Consolidated Balance Sheets($ millions)20122011AssetsCurrent AssetsCash and cash equivalents$ 2,883$ 2,219Marketable securities-current1,6481,461Accounts receivable-net of allowances of $105 and $1084,0613,867InventoriesFinished goods1,7541,536Work in process1,1861,061Raw materials and supplies897819Total inventories3,8373,416Other current assets1,2011,277Total current assets13,63012,240Marketable securities-noncurrent1,162896Investments163155Property, plant and equipment22,52521,166Less: Accumulated depreciation(14,147)(13,500)Property, plant and equipment-net8,3787,666Goodwill7,3857,047Intangible assets-net1,9251,916Prepaid pension benefits1640Other assets1,2171,656Total assets$ 33,876$ 31,616LiabilitiesCurrent liabilitiesShort-term borrowings and current portion of long-term debt$ 1,085$ 682Accounts payable1,7621,643Accrued payroll701676Accrued income taxes371355Other current liabilities2,2812,085Total current liabilities6,2005,441Long-term debt4,9164,484Pension and postretirement benefits3,0863.972Other liabilities1,6341,857Total liabilities$15,836$15,754Equity3M Company shareholders' equity$9$9Additional paid-in capital4,0443,767Retained earnings30,67928,348Treasury stock(12,407)(11,679)Accumulated other comprehensive income (loss)(4,750)(5,025)Total 3M Company shareholders' equity17,57515,420Noncontrolling interest465442Total equity$18,040$15,862Total liabilities and equity$33,876$31,616

(a) Compute net operating profit after tax (NOPAT) for 2012. Assume that the combined federal and statutory rate is: 37.0% (Round your answer to the nearest whole number.)

2012 NOPAT =Answer

($ millions)

(b) Compute net operating assets (NOA) for 2012 and 2011. Treat noncurrent investments as a nonoperating item.

2012 NOA =Answer

($ millions)

2011 NOA =Answer

($ millions)

(c) Compute3M's RNOA, net operating profit margin (NOPM) and net operating asset turnover (NOAT) for 2012. (Round your answers to two decimal places. Do not round until your final answer. Do not use NOPM x NOAT to calculate RNOA.)

2012 RNOA =Answer

%

2012 NOPM =Answer

%

2012 NOAT =Answer

(d) Compute net nonoperating obligations (NNO) for 2012 and 2011.

2012 NNO =Answer

($ millions)

2011 NNO =Answer

($ millions)

(e) Compute return on equity (ROE) for 2012. (Round your answers to two decimal places. Do not round until your final answer.)

2012 ROE =Answer

%

(f) What is the nonoperating return component of ROE for 2012? (Round your answers to two decimal places.)

2012 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.

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