Direct Computation of Nonoperating Return Balance sheets and income statements for 3M Company follow. 3M COMPANY Consolidated Statements of Income For Years Ended December 31 ($ millions) 2018 2017 Net sales $32,765 $31,657 Operating expenses Cost of sales 16,682 16,055 Selling, general and administrative expenses 7,602 6,626 Research, development and related expenses 1,821 1,870 Gain on sale of businesses (547) (586) Total operating expenses 25,558 23,965 Operating income 7,207 7,692 Other expense, net* 207 144 Income before income taxes 7,000 7,548 Provision for income taxes 1,637 2,679 Net income including noncontrolling interest 5,363 4,869 Less: Net income attributable to noncontrolling interest 14 11 Net income attributable to 3M $5,349 $4,858 * Interest expense, gross is $350 million in 2018 and $322 million in 2017. 2018 2017 $2,853 380 5,020 4,366 $3,053 1,076 4,911 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 $37,987 3M COMPANY Consolidated Balance Sheets At December 31 ($ millions) Current assets Cash and cash equivalents 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 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 Other liabilities Total liabilities 3M Company shareholders' equity Common stock par value Additional paid-in capital Retained earnings Treasury stock $1,211 $1,853 2,266 1,945 749 870 243 310 2,775 2,709 7,244 7,687 13,4 12,096 2,987 3,620 3,010 2,962 $26,652 $26,365 9 9 5,643 5,352 40,636 39,115 (29,626) (25,887) Accumulated other comprehensive income (loss) Total 3M Company shareholders' equity Noncontrolling interest Total equity Total liabilities and equity (6,866) (7,026) 9,796 11,563 52 59 9,848 11,622 $36,500 $37,987 In 2018, 3M's return on equity (ROE) is 50.09% and its return on net operating assets (RNOA) is 25.89%. Required a. Compute net nonoperating expense (NNE) and net operating profit after tax (NOPAT). Assume a tax rate of 22%. Note: Round answers to the nearest million. 2018 NNE: $ million 2018 NOPAT: $ million b. Compute net nonoperating obligations (NNO). 2018 NNO: $ million 2017 NNO: $ million c. Compute financial leverage (FLEV). Note: Round your answer to three decimal places (for example, enter 6.776 for 6.77555). d. Compute NNEP and Spread. Note: Round percentages to two decimal places (for example, enter 6.66% for 6.6555%). NNEP: % d. Compute NNEP and Spread. Note: Round percentages to two decimal places (for example, enter 6.66% for 6.6555%). NNEP: % Spread: % e. Compute the noncontrolling interest ratio (NCI ratio). Note: Round your answers to four decimal places (for example, enter 6.7756 for 6.775555). NCI ratio: f. Confirm the relation: ROE = [RNOA + (FLEV ~ Spread)] * NCI ratio. Note: For FLEV, round amount to three decimal places (for example, enter 6.776 for 6.775555). Note: For RNOA and Spread round percentages to two decimal places (for example, enter 6.66% for 6.6555%). Note: Round NCI ratio, round amount to four decimal places (for example, enter 1.7756 for 1.77555). Note: Round ROE to the nearest whole percentage. RNOA x Spread = ROE +( FLEV % + ( X NCI Ratio % x %
