Analysis and Interpretation of Profitability Balance sheets and income statements for 3M Company follow. Consolidated Statements of Income Years ended December 31 (s millions) 2006 2005 2004 Net sales $22,923 $ 21,167 $ 20,011 Operating expenses Cost of sales 11,713 10,408 10,002 Selling, general and administrative expenses 5,066 4,631 4,437 Research, development and related expenses 1,522 1,274 1,246 Loss/(gain) from sale of business (1,074) Total operating expenses 17.227 16,313 15,685 Operating income 5,696 4,854 4,326 Interest expenses and income Interest expense 122 82 69 Interest income (51) (56) (46) Total interest expense 71 26 23 Income before income taxes 5,625 4,828 4,303 Provision for income taxes 1,723 1,627 1,400 Net income including noncontrolling interest 3,902 3,201 2,903 Less: Net income attributable to noncontrolling interest 51 55 62 Netcome $ 3,851 $3,146 $ 2,841 Consolidated Balance Sheets (5 millions) 2006 2005 $1,072 Assets Current Assets Cash and cash equivalents Marketable securities-current Accounts receivable.net Inventories Finished goods Work in process Raw materials and supplies $ 1,447 471 3,102 2,838 1,050 1.235 795 571 706 406 Consolidated Balance Sheets ($ millions) 2006 2005 $ 1,447 $ 1,072 471 3,102 2,838 1,235 795 1,050 706 406 571 2,601 7,325 8,946 2,162 1,043 7,115 166 Assets Current Assets Cash and cash equivalents Marketable securities-current Accounts receivable-net Inventories Finished goods Work in process Raw materials and supplies Total inventories Other current assets Total current assets Marketable securities-noncurrent Investments Property, plant and equipment Less: Accumulated depreciation Property, plant and equipment-net Goodwill Intangible assets-net Prepaid pension benefits Other assets Total assets Liabilities Current liabilities Short-term borrowings and current portion of long-term debt Accounts payable Accrued payroll Accrued income taxes Other current liabilities Total current liabilities Long-term debt Pension and postretirement benefits 314 272 17,017 16,127 (11,110) (10,534) 5,907 5,593 4,082 3,530 708 486 395 2,905 776 640 $ 21,294 $20,541 $ 1,072 1,256 469 $2.506 1,402 520 1.134 1,761 7.323 1.047 989 1,452 5.238 1,309 ws Lord and power Other 25 11 10 10 17 M Company standers by Commstock paws. Adipada Burtained Truty Accued other comme Total Moon hout TE 1104 al Compute net operating profiter (NORA) for 2006 Aume that the combined federal and statutory rate 36.0 Hound your www to the set whole 2006 NOPAT 645 x millions a) Compute net operating nets (OA) for 2006 and 2005. Treat noncurrent Investments as a nonoperating them 200 NOO X 5 million 2005 NOA-0 X million) to compute SMS RNOA, net operating profit marg OPM and net operatie turnover (NOAT for 2006. Round your answers to two decimal places. Do not only not use NOPMXNOAY to calculate RNOA 2006 RNOA 31.44 2006 NOPM - 24.85 x 2006 NOAT- Compute MSANOA net operating profit marg OPM and net operating setur (NOAT) for 2006. Round your answers to deomplaces Demanderye na www. not use NOPM NOAT to calculate NOA) 2006 RNOA 3144 * 2006 NOPM - 24.85 2006 NOAT-O x (dCompute net nonoperating obligations (NO) for 2006 and 2005 2006 NNO - 0 * 5 million 2005 NNDO x millions te) Compute return on equity Rob for 2006. Round your answers to two decimal places. Do not round until your final wir 2006 ROE3144 X in) What the nonoperating return component of ROE for 20067 Round your answers to two decimal places) 200 nonoperating return X Which of the following statements reflects the best inference we can draw from the difference between MSROE and RINOA CROERNOA implies that has taken on too much financial leverage BROERNOA implies that 3M is able to borrow money to fund operating assets that yield retur greater than its cost of debt CROERNOA implies that M's equity has grown faster than it NOA CROE > RNA implies that has increased its financial leverage during the period Check