Analysis and Interpretation of Profitability
Balance sheets and income statements for 3M Company follow.
Consolidated Statements of Income | |||
---|---|---|---|
Years ended December 31 ($ millions) | 2009 | 2008 | 2007 |
Net sales | $23,123 | $25,269 | $24,462 |
Operating expenses | |||
Cost of sales | 12,109 | 13,379 | 12,735 |
Selling, general and administrative expenses | 4,907 | 5,245 | 5,015 |
Research, development and related expenses | 1,293 | 1,404 | 1,368 |
Loss/(gain) from sale of business | -- | 23 | (849) |
Total operating expenses | 18,309 | 20,051 | 18,269 |
Operating income | 4,814 | 5,218 | 6,193 |
Interest expenses and income | |||
Interest expense | 219 | 215 | 210 |
Interest income | (37) | (105) | (132) |
Total interest expense | 182 | 110 | 78 |
Income before income taxes | 4,632 | 5,108 | 6,115 |
Provision for income taxes | 1,388 | 1,588 | 1,964 |
Net income including noncontrolling interest | 3,244 | 3,520 | 4,151 |
Less: Net income attributable to noncontrolling interest | 51 | 60 | 55 |
Net income | $ 3,193 | $ 3,460 | $ 4,096 |
Consolidated Balance Sheets | ||
---|---|---|
($ millions) | 2009 | 2008 |
Assets | ||
Current Assets | ||
Cash and cash equivalents | $ 3,040 | $ 1,849 |
Marketable securities-current | 744 | 373 |
Accounts receivable-net | 3,250 | 3,195 |
Inventories | ||
Finished goods | 1,255 | 1,505 |
Work in process | 815 | 851 |
Raw materials and supplies | 569 | 657 |
Total inventories | 2,639 | 3,013 |
Other current assets | 1,122 | 1,168 |
Total current assets | 10,795 | 9,598 |
Marketable securities-noncurrent | 825 | 352 |
Investments | 103 | 111 |
Property, plant and equipment | 19,440 | 18,812 |
Less: Accumulated depreciation | (12,440) | (11,926) |
Property, plant and equipment-net | 7,000 | 6,886 |
Goodwill | 5,832 | 5,753 |
Intangible assets-net | 1,342 | 1,398 |
Prepaid pension benefits | 78 | 36 |
Other assets | 1,275 | 1,659 |
Total assets | $ 27,250 | $ 25,793 |
Liabilities | ||
Current liabilities | ||
Short-term borrowings and current portion of long-term debt | $ 613 | $ 1,552 |
Accounts payable | 1,453 | 1,301 |
Accrued payroll | 680 | 644 |
Accrued income taxes | 252 | 350 |
Other current liabilities | 1,899 | 1,992 |
Total current liabilities | 4,897 | 5,839 |
Long-term debt | 5,097 | 5,166 |
Pension and postretirement benefits | 2,227 | 2,847 |
Other liabilities | 1,727 | 1,637 |
Total liabilities | 13,948 | 15,489 |
Equity | ||
3M Company shareholders' equity: Common stock, par value $.01 per share; | 9 | 9 |
Additional paid-in capital | 3,153 | 3,006 |
Retained earnings | 23,753 | 22,227 |
Treasury stock | (10,397) | (11,676) |
Accumulated other comprehensive income (loss) | (3,754) | (3,686) |
Total 3M Company shareholders' equity | 12,764 | 9,880 |
Noncontrolling interest | 538 | 424 |
Total equity | 13,302 | 10,304 |
Total liabilities and equity | $ 27,250 | $ 25,793 |
(a) Compute net operating profit after tax (NOPAT) for 2009.
Assume that the combined federal and statutory rate is: 36.1%
(Round your answer to the nearest whole number.)
2009 NOPAT = ? ($ millions)
(b) Compute net operating assets (NOA) for 2009 and 2008. Treat
noncurrent Investments as a nonoperating item.
2009 NOA = ? ($ millions)
2008 NOA = ? ($ millions)
(c) Compute 3M's RNOA, net operating profit margin (NOPM) and net
operating asset turnover (NOAT) for 2009. (Round your answers to
two decimal places. Do not use NOPM x NOAT to calculate
RNOA.)
2009 RNOA = ? %
2009 NOPM = ? %
2009 NOAT = ?
(d) Compute net nonoperating obligations (NNO) for 2009 and
2008.
2009 NNO = ? ($ millions)
2008 NNO = ? ($ millions)
(e) Compute return on equity (ROE) for 2009. (Round your answers to
two decimal places. Do not round until your final answer.)
2009 ROE = ? %
(f) What is the nonoperating return component of ROE for 2009?
(Round your answers to two decimal places.)
Hint: Use your prior rounded answers to compute
this answer.
2009 nonoperating return = ? %
Part A
2009 NOPAT = Operating income -Tax on operating profit
Tax on operating profit = Tax Expense + Tax Shield= Tax Expense + (Pretax net nonoperating expense × Statutory tax rate)
=4814-(1388+(182*36.1%)) = $3360
Part B
NOA = Operating Assets – Operating Liabilities
NOA = (total assets – cash and equivalents – Marketable securities-current– Marketable securities-noncurrent – investments) – (Total liabilities - Short-term borrowings and current portion of long-term debt - Long-term debt)
2009 NOA = (27250-3040-744-825-103)-(13948-163-5097) = $13850
2008 NOA = (25793-1849-373-352-111)-(15489-1552-5166) = $14337
Part C
2009 RNOA = NOPAT/Average NOA = 3360/((13850+14337)/2) = 23.84%
2009 NOPM = NOPAT/Sales = 3360/23123 = 14.53%
2009 NOAT = Sales/ Average NOA = 23123/((13850+14337)/2) = 1.64
Part D
NNO = Nonoperating Liabilities + Noncontrolling Interest – Nonoperating Assets
2009 NNO = (163+5097) + 0 – (3040+744+825+103) = $548
2008 NNO = (1552+5166) +0 – (1849+373+352+111) = 4033
Part E
ROE = NI/Average SE = 3193/((12764+9880)/2)= 28.20%
Part F
Nonoperating Return = ROE – RNOA = 28.20%-23.84% = 4.36%
Part G
Option B
ROE > RNOA implies that 3M is able to borrow money to fund operating assets that yield a return greater than its cost of debt.
Analysis and Interpretation of Profitability Balance sheets and income statements for 3M Company follow. Consolidated Statements...
Analysis and Interpretation of Profitability Balance sheets and income statements for 3M Company follow. Consolidated Statements of Income Years ended December 31 ($ millions) 2010 2009 2008 Net sales $26,662 $23,123 $25,269 Operating expenses Cost of sales 13,831 12,109 13,379 Selling, general and administrative expenses 5,479 4,907 5,245 Research, development and related expenses 1,434 1,293 1,404 Loss/(gain) from sale of business -- -- 23 Total operating expenses 20,744 18,309 20,051 Operating income 5,918 4,814 5,218 Interest expenses and income Interest...
Analysis and Interpretation of Profitability Balance sheets and income statements for 3M Company follow. Consolidated Statements of Income Years ended December 31 ($ millions) 2010 2009 2008 Net sales $26,662 $23,123 $25,269 Operating expenses Cost of sales 13,831 12,109 13,379 Selling, general and administrative expenses 5,479 4,907 5,245 Research, development and related expenses 1,434 1,293 1,404 Loss/(gain) from sale of business -- -- 23 Total operating expenses 20,744 18,309 20,051 Operating income 5,918 4,814 5,218 Interest expenses and income Interest...
Analysis and Interpretation of Profitability Balance sheets and income statements for 3M Company follow. Consolidated Statements of Income Years ended December 31 ($ millions) 2010 2009 2008 Net sales $26,662 $23,123 $25,269 Operating expenses Cost of sales 13,831 12,109 13,379 Selling, general and administrative expenses 5,479 4,907 5,245 Research, development and related expenses 1,434 1,293 1,404 Loss/(gain) from sale of business -- -- 23 Total operating expenses 20,744 18,309 20,051 Operating income 5,918 4,814 5,218 Interest expenses and income Interest...
Analysis and Interpretation of Profitability Balance sheets and income statements for 3M Company follow. Consolidated Statements of Income Years ended December 31 ($ millions) 2010 2009 2008 Net sales $26,662 $23,123 $25,269 Operating expenses Cost of sales 13,831 12,109 13,379 Selling, general and administrative expenses 5,479 4,907 5,245 Research, development and related expenses 1,434 1,293 1,404 Loss/(gain) from sale of business -- -- 23 Total operating expenses 20,744 18,309 20,051 Operating income 5,918 4,814 5,218 Interest expenses and income Interest...
Analysis and Interpretation of Profitability Balance sheets and income statements for 3M Company follow. Consolidated Statements of Income Years ended December 31 ($ millions) 2010 2009 2008 Net sales $26,662 $23,123 $25,269 Operating expenses Cost of sales 13,831 12,109 13,379 Selling, general and administrative expenses 5,479 4,907 5,245 Research, development and related expenses 1,434 1,293 1,404 Loss/(gain) from sale of business -- -- 23 Total operating expenses 20,744 18,309 20,051 Operating income 5,918 4,814 5,218 Interest expenses and income Interest...
Analysis and Interpretation of Profitability Balance sheets and income statements for 3M Company follow. Consolidated Statements of Income Years ended December 31 ($ millions), 2007 2006 2005 Net sales $24,462 $22,923 $21,167 Operating expenses Cost of sales 12,735 11,713 10,408 Selling, general and administrative expenses 5,015 5,066 4,631 Research, development and related expenses 1,368 1,522 1,274 Loss/(gain) from sale of business (849) (1,074) Total operating expenses 18,269 17,227 16,313 Operating income 6,193 5,696 4,854 Interest expenses and income Interest expense...
Analysis and Interpretation of Profitability Balance sheets and income statements for 3M Company follow. Consolidated Statements of Income Years ended December 31 ($ millions) 2012 2011 2010 Net sales $29,904 $ 29,611 $ 226,662 Operating expenses Cost of sales 15,685 15,693 13,831 Selling, general and administrative expenses 6,102 6,170 5,479 Research, development and related expenses 1,634 1,570 1,434 -- -- -- Total operating expenses 23,421 23,433 20,744 Operating income 6,483 6,178 5,918 Interest expenses and income Interest expense 171 186...
Analysis and Interpretation of Profitability Balance sheets and income statements for 3M Company follow. Consolidated Statements of Income Years ended December 31 ($ millions) 2007 2006 2005 Net sales $24,462 $22,923 $21,167 Operating expenses Cost of sales 12,735 11,713 10,408 Selling, general and administrative expenses 5,015 5,066 4,631 Research, development and related expenses 1,368 1,522 1,274 Loss/(gain) from sale of business (849) (1,074) -- Total operating expenses 18,269 17,227 16,313 Operating income 6,193 5,696 4,854 Interest expenses and income Interest...
Analysis and Interpretation of Profitability Balance sheets and income statements for 3M Company follow. Consolidated Statements of Income Years ended December 31 ($ millions) 2007 2006 2005 Net sales $24,462 $22,923 $21,167 Operating expenses Cost of sales 12,735 11,713 10,408 Selling, general and administrative expenses 5,015 5,066 4,631 Research, development and related expenses 1,368 1,522 1,274 Loss/(gain) from sale of business (849) (1,074) Total operating expenses 18,269 17.227 16,313 Operating income 6,193 5,696 4,854 Interest expenses and income Interest expense...
Balance sheets and income statements for 3M Company follow. Consolidated Statements of Income Years ended December 31 ($ millions) 2009 2008 2007 Net sales $23,123 $25,269 $24.462 Operating expenses Cost of sales 12.109 13.379 12,735 Selling. general and administrative expenses 4,907 5,245 5.015 Research, development and related expenses 1,293 1,404 1,368 Loss/(gain) from sale of business 23 (849) Total operating expenses 18.309 20,051 18.269 Operating income 4.814 5.218 6.193 Interest expenses and income Interest expense 219 215 210 Interest income...