Question

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Analysis and Interpretation of Profitability Balance sheets and income statements for 3M Company follow. Consolidated Statements of Income Years ended December 31 (S millions) 2012 2011 2010 Net sales Operating expenses Cost of sales Selling, general and administrative expenses Research, development and related expenses $29,904 29,611 $226,662 15,685 15,693 13,831 6,102 6,1705,479 ,634 1,570 1434 23,421 23,433 20,744 Total operating expenses Operating income Interest expenses and income Interest expense Interest income 6,483 6,1785,918 186 (39) 147 201 (38) 163 6,351 6,031 5,755 1,592 4,511 $4,357 $4,163 78 $4,444 4,283 4,085 (39) 132 Total interest expense-net Income before income taxes Provision for income taxes Net income including noncontrolling interest Less: Net income attributable to noncontrolling interest Net income attributable to 3M 1,840 1,674 67 74

Answer 1

a) Nopat for 2012 is computed as [ 6483 - (1840 - ((171-39)*37%) = 4692

b)

	2012	2011
Total Assets	33876	31616
Less Cash and cash equilvalent	-2883	-2219
Less Investments	-163	-155
Operting assets (A)	30830	29242
Total current liability	6200	5441
Less short term borrowing	-1085	-682
Add Pension post retirement	3086	3972
Add other liabilties	1634	1857
Operating liability (B)	9835	10588
NOA (A-B)	20995	18654

c)

Formula	2012	Working
RNOA (NOPAT / NOA)	22.35%	=4692 / 20995
NOPM (NOPAT / Sales)	15.69%	=4692 / 29904
NOAT (Sales / NOA)	1.42	=29904 / 20995

d) Computation of NNO

	2012	2011
Long term loan	4916	4484
Short term borrowing	1085	682
Less Cash and cash equivalent	-2883	-2219
NNO	3118	2947

e) ROE = Net income attributable to 3m divided by Average of Total 3m company equity and Total equity

4444 / (17575 + 18040)/2 = 24.96%

f) Non operating return component = ROE - RNOA

= 24.96% - 22.35% = 2.61%

g) The best reference that can be drawn is ROE >RNOA imples that 3M is able to borrow money to fund operating assets that yield a return greater than its cost of debt

Answer 2

a) Calculation of NOPAT: NOPAT = EBIT x (1-Tax rate) - $6483 x (1-0.37) -$4084.29 b) Calculationof Net operating assets is as follows: Particulars 2,011 31,616 2,012 33,876 Total Asssets Less: Cash and Cash Equivalents Invstments Current Marketable Securities Non Current Marketable Securities 2,219 155 1,461 896 26,885 2,883 163 1,648 1,162 28,020 rating Assets(1) Total Liabilities Less: Short term borrowing and longterm debt current Long term debt 15,754 15,836 682 4,484 10,588 1,085 4,916 9,835 ating Liabilities(2) Non Operating assets(1)-(2) 16,297 18,185

c) Calculate the return on net operating assets is as follows: Return on net operating assets = NOPAT/ Average net operating assets -4,089.29/(18185+16297/2) =237% Net operating profit margin -Net Sales/Avg net operating assets -4,084.29/29,904 13.7% Net Operating assets turnover Sales/Avg net operating assets 29,904/[18185+16297/2] =1.73

d) Calcualtion of Net Operating obligations is as follows Particulars Cash and Cash Equivalents Invstments Current Marketable Securities Non Current Marketable Securities 2,011 2,219 155 1,461 896 4,731 2,012 2,883 163 1,648 1,162 5,856 erating Assets(1) Short term borrowing and longterm debt current Long term debt 682 4,484 5,166 1,085 4,916 6,001 rating Liabilities(2) Non Operating assets(2) -(1) 435 145

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