Analysis and Interpretation of Profitability
Balance sheets and income statements for 3M Company follow.
| Consolidated Statements of Income |
|---|
| Years ended December 31 ($ millions) | 2008 | 2007 | 2006 |
|---|
| Net sales | $25,269 | $24,462 | $22,923 |
| Operating expenses | | | |
| Cost of sales | 13,379 | 12,735 | 11,713 |
| Selling, general and administrative expenses | 5,245 | 5,015 | 5,066 |
| Research, development and related expenses | 1,404 | 1,368 | 1,522 |
| Loss/(gain) from sale of business | 23 | (849) | (1,074) |
| Total operating expenses | 20,051 | 18,269 | 17,227 |
| Operating income | 5,218 | 6,193 | 5,969 |
| Interest expenses and income | | | |
| Interest expense | 215 | 210 | 122 |
| Interest income | (105) | (132) | (51) |
| Total interest expense | 110 | 78 | 71 |
| Income before income taxes | 5,108 | 6,115 | 5,625 |
| Provision for income taxes | 1,588 | 1,964 | 1,723 |
| Net income including noncontrolling interest | 3,520 | 4,151 | 3,902 |
| Less: Net income attributable to noncontrolling interest | 60 | 55 | 51 |
| Net income | $ 3,460 | $ 4,096 | $ 3,851 |
| Consolidated Balance Sheets |
|---|
| ($ millions) | 2008 | 2007 |
|---|
| Assets | | |
| Current Assets | | |
| Cash and cash equivalents | $ 1,849 | $ 1,896 |
| Marketable securities-current | 373 | 579 |
| Accounts receivable-net | 3,195 | 3,362 |
| Inventories | | |
| Finished goods | 1,505 | 1,349 |
| Work in process | 851 | 880 |
| Raw materials and supplies | 657 | 623 |
| Total inventories | 3,013 | 2,852 |
| Other current assets | 1,168 | 1,149 |
| Total current assets | 9,598 | 9,838 |
| Marketable securities-noncurrent | 352 | 480 |
| Investments | 111 | 298 |
| Property, plant and equipment | 18,812 | 18,390 |
| Less: Accumulated depreciation | (11,926) | (11,808) |
| Property, plant and equipment-net | 6,886 | 6,582 |
| Goodwill | 5,753 | 4,589 |
| Intangible assets-net | 1,398 | 801 |
| Prepaid pension benefits | 36 | 1,378 |
| Other assets | 1,659 | 728 |
| Total assets | $ 25,793 | $ 24,694 |
| Liabilities | | |
| Current liabilities | | |
| Short-term borrowings and current portion of long-termdebt | $ 1,552 | $ 901 |
| Accounts payable | 1,301 | 1,505 |
| Accrued payroll | 644 | 580 |
| Accrued income taxes | 350 | 543 |
| Other current liabilities | 1,992 | 1,833 |
| Total current liabilities | 5,839 | 5,362 |
| Long-term debt | 5,166 | 4,019 |
| Pension and postretirement benefits | 2,847 | -- |
| Other liabilities | 1,637 | 3,566 |
| Total liabilities | 15,489 | 12,947 |
| Equity | | |
| 3M Company shareholders' equity | 9 | 9 |
| Additional paid-in capital | 3,006 | 2,785 |
| Retained earnings | 22,227 | 20,316 |
| Treasury stock | (11,676) | (10,520) |
| Accumulated other comprehensive income (loss) | (3,686) | (843) |
| Total 3M Company shareholders' equity | 9,880 | 11,747 |
| Noncontrolling interest | 424 | -- |
| Total equity | 10,304 | 11,747 |
| Total liabilities and equity | $ 25,793 | $ 24,694 |
(a) Compute net operating profit after tax (NOPAT) for 2008. Assumethat the combined federal and statutory rate is: 35.9% (Round youranswer to the nearest whole number.)
(b) Compute net operating assets (NOA) for 2008 and 2007. Treatnoncurrent Investments as a nonoperating item.
(c) Compute 3M's RNOA, net operating profit margin (NOPM) andnet operating asset turnover (NOAT) for 2008. (Round your answersto two decimal places. Do not round until your final answer. Do notuse NOPM x NOAT to calculate RNOA.)
(d) Compute net nonoperating obligations (NNO) for 2008 and2007.
(e) Compute return on equity (ROE) for 2008. (Round your answersto two decimal places. Do not round until your final answer.)
(f) What is the nonoperating return component of ROE for 2008?(Round your answers to two decimal places.)
