Question

please help with correct answer. i need help urgently

Analysis and Interpretation of Profitability Balance sheets and income statements for 3M Company follow. 3M COMPANY Consolidated Statements of Income For Years ended December 31 ($ millions) 2015 2014 2013 Net sales $30,274 $31,821 $30,871 Operating expenses Cost of sales 15,383 16,447 16,106 Selling, general and administrative expenses 6,182 6,469 6,384 Research, development and related expenses 1,763 1,770 1,715 Total operating expenses 23,328 24,686 24,205 Operating income 6,946 7135 6,666 Interest expenses and income Interest expense 149 142 145 Interest income (26) (33) (41) Total interest expense--net 123 109 104 Income before income taxes 6,823 7,026 6,562 Provision for income taxes 1,982 2,028 1,841 Net income including noncontrolling interest $4,841 $4,998 $4,721 Less: Net income attributable to noncontrolling interest 8 42 62 Net income attributable to 3M $ 4,833 $ 4,956 $ 4,659

Answer 1

3 M Company - Consolidated Income Statement
On the basis of Income Statement + Balance Sheet , We need to calculate following Ratio
a)	NOPAT 2015 ( Net Operating Profit After Tax)
	Tax rate -37%
		Year 2015($)	Year 2015($)	Year 2015($)
	As per Question
	Operating Income			6,946
	Less-
	Provision for Income Tax--a		1,982
	Add- Interest Expenses Net ---b	123
	Less -Tax Impact(37%)	45.51
	(37%*$123		45.51	2,028	(a+b)
	NOPAT 2015 ( Net Operating Profit After Tax)			4,918
B)	Net Operating Asset	Year 2015($)	Year 2014($)
	from Balance Sheet , we need to calculate NOA
	Total Asset	32,718	31,209
	Less
	Cash and Cash Equivalent	1,798	1,897
	Marketable Securities-Current	118	1,439
	Investment	117	102
	Marketable Securities-NonCurrent	9	15
	Net Total Asset-A	30,676	27,756
	Total Current Liability	7,118	5,964
	Less
	Short term borrowing& Current portion of Long term debt	2,044	106
	Net Current Liability-B	5,074	5,858
	Pension and Postretirement Benefits- C	3,520	3,843
	Other Liability-D	1,580	1,555
	Net Operating Asset(A-B-C-D)	20,502	16,500
c	Before we start answering Answer 3 , Calculate Average NOA	Year 2015($)	Year 2014($)	Average ($)
	Average NOA	20,502	16,500	18,501	($20502+$16500)/2
	Return NOA
	NOPAT ( as calculated above)	4,918	A
	Average NOA	18,501	B
	RNOA	26.58%	(A/B)
	NOPM
	NOPAT ( as calculated above)	4,918	A
	Sales ( As per Question)	30,274	B
	NOPM	16.25%	(A/B)
	NOAT( Times)
	Sales ( As per Question)	30,274	A
	Average NOA	18,501	B
	NOAT( Times)	1.64	(A/B)
D	Net Non Operating Obligation (NNO)
	NNO	Year 2015($)	Year 2014($)
	Long term Debt	8,753	6,705
	Short term borrowing& Current portion of Long term debt	2,044	106
	Debt-A	10,797	6,811
	Less
	Cash and Cash Equivalent	1,798	1,897
	Marketable Securities-Current	118	1,439
	Investment	117	102
	Marketable Securities-NonCurrent	9	15
	Total-B	2,042	3,453
	NNO(A-B)	8,755	3,358
E	ROE	Year 2015($)
	( Return on Equity)
	Net Income attributable 3M -as per Question	4,833	A
	Average Equity (2015 and 2014)	12,409	B
	As per Question
	2015 $11708
	2014 $13109
	Average -($11708+$13109)/2
	ROE	38.95%	(A/B)
G	Correct Answer B
	ROE> RNOA
	ROE - 38.95%
	RNOA -26.58%
	It implies that 3M is able to borrow money
	to fund operating assets that Yield a return
	greater than its cost of debt