Question

3M is one of those companies that is more adept than others at creating products, marketing those products, and being financially astute. 3M is the world leader in optical films, industrial and office tapes, and nonwoven fabrics. Consumers may recognize 3M as the maker of Post-it notes, Scotch tape, and sponges, in addition to thousands of other diverse products such as overhead projectors and roofing granules. The company has always been known for its ability to create new products and markets, and, at times, as much as 35 percent of its sales have been generated from products developed in the previous five years. To accomplish these goals, 3M’s research and development has to be financed, the design and production functions funded, and the products marketed and sold worldwide. This process involves all the functions of business.

Did you ever stop to think about the importance of the finance function for a $32 billion multinational company like 3M where 64 percent of sales are international? Someone has to manage the international cash flow, bank relationships, payroll, purchases of plant and equipment, and acquisition of capital. Financial decisions must be made concerning the feasibility and profitability of the continuous stream of new products developed through 3M’s very creative research and development efforts. The financial manager needs to keep his or her pulse on interest rates, exchange rates, and the tone of the money and capital markets.

To have a competitive multinational company, the financial manager must manage 3M’s global affairs and react quickly to changes in financial markets and exchange rate fluctuations. The board of directors and chief executive officer rely on the financial division to provide a precious resource—capital—and to manage it efficiently and profitably. If you would like to do some research on 3M, you can access its home page at www.3m.com. If you would like to understand more about how companies make financial decisions, keep reading.

Our Chapter 1 discussion will focus on the role of the finance function for 3M. Using the discussion area, tell us your reaction to the following:

Describe what you consider to be the major challenges facing the finance function of the 3M Company in today's business environment.

Participation Guidelines:

Each student must respond to the discussion question that appears above as an original post. In addition, you must also reply to at least one fellow student's response. Please refer to the course syllabus for forum deadlines.

Answer 1

Challenges faced by 3M in today's competitive business environment-

The debt levels of 3 M have risen to the present and long-term debt level over the past 12 months. 3 M's cash and short-term investment with this raise in debt is ready for deployment in the sector at US$ 4,13B. In the last 12 months, 3 M has also provided US$ 6.24B in operating cash flows, which results in a total debt ratio of operating cash of 44.54 percent, so that 3 M is able to fund its debt.

The organisation was in a position to meet these obligations with the current amount of assets at the existing liabilities stage, resulting in a 1.86x account current ratio. This is typically an acceptable ratio for industrial firms as a cash buffer is adequate without getting too much money in low-investments.

Although the debt amount of 3 M is on the higher end, it tends to fulfil commitments that are sufficient for their cash flow to allow productive use of their debt. This could mean that the company is optimally capitalised, as it fulfils its short-term engagement. This is just a rough financial health evaluation and I'm sure that 3 M has unique business problems that influence its decisions on the capital structure.

Not particularly concerned, even with these challenges. 3 M has a healthy margin and high asset and equity returns. The standard large capital stocks typically have a little premium, although the P / E tends to be a little higher. With a decent dividend, an enticing suite of companies and an even better growth potential.