Question

Compute Measures for DuPont Disaggregation Analysis
Use the information below for 3M Company to answer the requirements (perform these computations from the perspective of a 3M shareholder).

($ millions)		2015	2014
Sales		$31,385
Net income, consolidated		5,554
Net income attributable to 3M shareholders		5,546
Assets		33,139	$31,630
Total equity		11,747	13,142
Equity attributable to 3M shareholders		11,708	13,109

a. Compute return on equity (ROE).
Round answer to two decimal places (ex: 0.12345 = 12.35%)
Answer

%

b. Compute the DuPont model component measures for profit margin, asset turnover, and financial leverage.

• Round profit margin to two decimal places (ex: 0.12345 = 12.35%)
• Round asset turnover and financial leverage to three decimal places.

Profit margin Answer

%
Asset turnover Answer

Financial leverage Answer

c. Compute ROA.
Round answer to two decimal places (ex: 0.12345 = 12.35%)
ROA Answer

%

d. Compute adjusted ROA (assume a statutory tax rate of 37% and pretax net interest expense of $123).
Round answer to two decimal places (ex: 0.12345 = 12.35%)
Answer

%

Answer 1

Part a

ROE = Net income / Average equity

ROE = 5546 / ((11708 + 13109) / 2)

ROE = 44.70%

Part b

Net margin = Net profit / Sales

Net margin = 5546 / 31385

Net margin = 17.67%

Asset turnover = Sales / Average total assets

Asset turnover = 31385 / ((33139 + 31630) / 2)

Asset turnover = 0.9691

Equity multiplier = Average total assets / Average equity

Asset turnover = ((33139 + 31630) / 2) / ((11708 + 13109) / 2)

Asset turnover = 2.6099

As per DuPont model

ROE = Net margin * Asset turnover * Equity multiplier

ROE = 17.67% * 0.9691 * 2.6099

ROE = 44.70%

Part c

ROA = Net income / Total assets

ROA = 5546 / ((33139 + 31630) / 2)

ROA = 17.13%

Part d

NOPAT = EBIT * (1 - tax rate)

NOPAT = ((5546 / (1 - 37%)) + 123) * (1 - 37%)

NOPAT = 5,623.49

Adjusted ROA = NOPAT / Total assets

Adjusted ROA = 5623.49 / ((33139 + 31630) / 2)

Adjusted ROA = 17.36%