Financial Statement Analysis Assignment 1 Question 6 from mybusinesscourse.com

Analysis and Interpretation of Protability Balance sheets and income statements for 3M Company follow. Consolidated statements of Income Vears ended December 31 (S millions) Net sales Operating expenses Cost of sales Selling. general and administrative expenses Research, development and related expenses 2010 2009 2008 $26,662 $23,123 $25,269 1 3,831 5,479 1 ,434 Loss/(gain) from sale of business -- Total operating expenses Operating income Interest expenses and income Interest expense Interest income Total interest expense Income before income taxes Provision for income taxes Net income including noncontrolling interest Less: Net income attributable to noncontrolling interest Net income Assets Cu rrent 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 20,744 5,918 201 (33) 5,755 1,592 4,163 Consolidated Balance Sheet: (S mlllldns) 12,109 4,907 1,293 (105) 5,108 1,583 3,520 2010 3 3,377 1,101 3,615 1,476 950 729 3,155 967 12,215 2009 5 3,040 744 3,250 1,255 815 569 2,639 1,122 1 0,795 Marketable securities-noncurrent 540 825 lnvestmenls 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 5,820 5,832 Intangible assets-net 1,820 1,342 Prepaid pension benets 74 78 Other assets 1,262 1,275 Total assets 5 30,156 5 27,250 Liabilities Current liabilities Short-term borrowings and current portion of long-term debt 5 1,269 S 613 Accounts payable 1,662 1,453 Accrued payroll 77B 680 Accrued income taxes 353 252 Other current liabilities 2,022 1,899 Total current liabilities 6,089 4,897 Long-term debt 4,183 5,097 Pension and postretirement benets 2,013 2,227 Other liabilities 1,854 1,727 Total liabilities 14,139 13,943 Equity 3M Company shareholders' equity: Common stock, par value $01 per share; 9 9 Additional paid-in capital 3,463 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 354 533 Total equity 16,017 13,302 Total liabilities and equity $ 301155 5 27 25 (a) Compute net operating prot after tax (NOPAT) for 201 0' Assume that the combined federal and statutory rate is: 37.0% (Round your answer to the nearest whole number.) 2010 NOPAT = 3728 (3 millions) (a) Compute net operating prot after tax (NOPAT) for 201 0. Assume that the combined federal and statutory rate is: 37.0% (Round your answer to the nearest whole number.) 2010 NOPAT = 3728 (3 millions) (b) Compute net operating assets (NOA) for 2010 and 2009. Treat noncurrent Investments as a nonoperating item. 2010 NOA= 15744 ($ millions) 2009 NOA= 14331 ($ millions) (c) Compute 3M's RNOA. net operating prot margin (NOPM) and net operating asset turnover (NDAT) for 2010. (Round your answers to two decimal places. Do not round until your nal answer. Do not use NOPM x NOAT to calculate RNOA.) 201D RNOA= 24.75 96 201DNOPM = 13.9E '36 2010 NOAT= 1.77 (d) Compute net nonoperating obligations (NNO) for 2010 and 2009. 2010 we = 945 ($ millions) 2009 MN!) = (s millions) (e) Compute return on equity (ROE) for 2010. (Round your answers to two decimal places. Do not round until your nal answer.) 201D ROE = 96 (f) What is the nonoperating return component of ROE for 2010? (Round your answers to two decimal places.) 2010 nonoperating return = % (g) Which of the following statements reects the best inference we can draw from the difference between 3M's ROE and RNOA? ~ROE > RNDA implies that 3M has taken on too much nancial leverage. ~ROE > RNDA implies that 3M is able to borrow money to fund operating assets that yield a return greater than its cost of debt. ~ROE > RNDA implies that 3M's equity has grown faster than its NOA. ~ROE > RNDA implies that 3M has increased its nancial leverage during the period