Question

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) 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 $350 million in 2018 and $322 million in 2017.

(a) Compute net operating profit after tax (NOPAT) for 2018. Assume that the combined federal and state statutory tax rate is 22%. (Round your answer to the nearest whole number.)
2018 NOPAT =Answer

($ millions)

(b) Compute net operating assets (NOA) for 2018 and 2017.
2018 NOA =Answer

($ millions)
2017 NOA =Answer

($ millions)

(c) Compute and disaggregate 3M’s RNOA into net operating profit margin (NOPM) and net operating asset turnover (NOAT) for 2018. Demonstrate that RNOA = NOPM × NOAT. (Round your answers to two decimal places. Do not round until your final answer. Do not use NOPM x NOAT to calculate RNOA.)
2018 RNOA =Answer

%
2018 NOPM =Answer

%
2018 NOAT =Answer

(d) Compute net nonoperating obligations (NNO) for 2018 and 2017. Confirm the relation: NOA = NNO + Total equity
2018 NNO =Answer

($ millions)
2017 NNO =Answer

($ millions)

(e) Compute return on equity (ROE) for 2018. (Round your answers to two decimal places. Do not round until your final answer.)
2018 ROE =Answer

%

(f) What is the nonoperating return component of ROE for 2018?(Round your answers to two decimal places.)
2018 nonoperating return =Answer

%

Answer 1

(a) Compute net operating profit after tax (NOPAT) for 2018. Assume that the combined federal and state statutory tax rate is 22%.

2018 NOPAT = $5,621 millions

( operating income*(1-tax rate))

($7,207*(1-0.22))

(b) Compute net operating assets (NOA) for 2018 and 2017.

2018 NOA=$27,234 millions ($33,267-$6,033)

2017 NOA=$28,024 millions ($33858-$5,834)

(Operating assets - operating liabilities)

(c) Compute and disaggregate 3M’s RNOA into net operating profit margin (NOPM) and net operating asset turnover (NOAT) for 2018. Demonstrate that RNOA = NOPM × NOAT. (Do not use NOPM x NOAT to calculate RNOA.)

2018 RNOA = 20.35%

( NOPAT*100/ Average NOA)

[$5,621*100/{($27,234+$28,024)/2}]

2018 NOPM = 17.16 %

(NOPAT/ Revenue)

($5,621*100/$32,765)

2018 NOAT = 1.19 times

(Revenue/ Avg. NOA)

($32,765/ $27,629)

disaggregate 3M’s RNOA:-

RNOA (NOPAT/Avg. NOA) = (NOPAT/ sales)*(sales/ avg. NOA)

20.35% = (17.16%*1.19=20.42)

(d)  Compute return on equity (ROE) for 2018. (Round your answers to two decimal places. Do not round until your final answer.)

2018 ROE = 15.88%

ROE= (operating return + non operating rerun)/(average stockholders equity)