Analysis and Interpretation of Profitability

Balance sheets and income statements for 3M Company follow.

Consolidated Statements of Income

Years ended December 31 ($ millions) 2010 2009 2008

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

Consolidated Balance Sheets

($ millions) 2010 2009

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

0

($ millions)

(b) Compute net operating assets (NOA) for 2010 and 2009. Treat noncurrent Investments as a nonoperating item.

2010 NOA =Answer

0

($ millions)

2009 NOA =Answer

0

($ 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

0

%

2010 NOPM =Answer

0

%

2010 NOAT =Answer

0

(d) Compute net nonoperating obligations (NNO) for 2010 and 2009.

2010 NNO =Answer

0

($ millions)

2009 NNO =Answer

0

($ 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

0

%

(f) What is the nonoperating return component of ROE for 2010? (Round your answers to two decimal places.)

Hint: Use your prior rounded answers to compute this answer.

2010 nonoperating return =Answer

0

%

(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.