Question

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-term debt	$ 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. Assume that the combined federal and statutory rate is: 35.9% (Round your answer to the nearest whole number.)
2008 NOPAT =Answer($ millions)

(b) Compute net operating assets (NOA) for 2008 and 2007. Treat noncurrent Investments as a nonoperating item.
2008 NOA =Answer($ millions)
2007 NOA =Answer($ millions)

(c) Compute 3M's RNOA, net operating profit margin (NOPM) and net operating asset turnover (NOAT) for 2008. (Round your answers to two decimal places. Do not round until your final answer. Do not use NOPM x NOAT to calculate RNOA.)
2008 RNOA =Answer%
2008 NOPM =Answer%
2008 NOAT =Answer

(d) Compute net nonoperating obligations (NNO) for 2008 and 2007.
2008 NNO =Answer($ millions)
2007 NNO =Answer($ millions)

Answer 1

1

NOPAT = Operating Profit - Tax on Operating Profit

Operating Profit = 5218

Tax on Operating Profit = Tax Expense + (Non Operating Expense Before Tax x Tax Rate) = 1388 + (110 x 35.9%)

= 1427

NOPAT = 5218 - 1427 = 3791

2

Net Operating Assets

= (Total Assets - Cash - Marketable Security (Current)- Marketable Securties (Non Current) - Investement) - (Total Liabilities -  Short Term borrowings and current portion of debt - Long term Debt)

2008 = (25793-1849-373-352-111)-(15489-1552-5166) = 14337

2007 = (24694-1896-579-280-298)-(12947-901-4019) = 13614

3

RNOA = NOPAT / Average Net Operating Asset = 3791 / 13976 = 0,27 or 27%

Average = Year 2008 + Year 2009 /2

NOPM = NOPAT / Sales = 3791 / 25269 = 0.15 or 15%

NOAT = Sales / Average Net Operating Asset = 25269 / 13976 = 1.81

4

Net Non Operatimg Obligation = Non Controling Interest + Non Operating Liability - Non Operating Asset

Non Operating Liability = Short Term borrowings and current portion of debt + Long term Debt = 6718

Non Controling Interest = 0

Non Operating Asset = Cash + Marketable Security (Current) + Marketable Securties (Non Current) + Investement

= 2685

2008 = 6718 + 0 - 2685 = 4033

2007 = 4920 + 0 - 3053 = 1867