Compute net operating profit after tax

Assignment Help Accounting Basics

Reference no: EM132746678

Question: Analysis and Interpretation of ProfitabilityBalance sheets and income statements for 3M Company follow. 3M COMPANY

Consolidated Statements of Income

For Years Ended December 31 ($ millions) 2018 2017

Net sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $32,765 $31,657

Operating expenses

Cost of sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,682 16,055

Selling, general and administrative expenses . . . . . . . . . . . . .7,602 6,626

Research, development and related expenses . . . . . . . . . . . .1,821 1,870

Gain on sale of businesses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (547) (586)

Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,558 23,965

Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,207 7,692

Other expense, net* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 207 144

Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,000 7,548

Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,637 2,679

Net income including noncontrolling interest . . . . . . . . . . . . . . . . 5,363 4,869

Less: Net income attributable to noncontrolling interest. . . . . . . . 14 11

Net income attributable to 3M. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,349 $ 4,858

Interest expense, gross is $350 million in 2018 and $322 million in 2017.

3M COMPANY

Consolidated Balance Sheets

At December 31 ($ millions) 2018 2017

Current assets

Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,853 $3,053

Marketable securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 380 1,076

Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,020 4,911

Total inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,366 4,034

Prepaids . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 741 937

Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 349 266

Total current assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,709 14,277

Property, plant and equipment, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8,738 8,866

Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,051 10,513

Intangible assets-net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,657 2,936

Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,345 1,395

Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $36,500 $37,987

Current liabilities

Short-term borrowings and current portion of long-term debt . . . . . . $ 1,211 $ 1,853

Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,266 1,945

Accrued payroll . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 749 870

Accrued income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 243 310

Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,775 2,709

Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,244 7,687

Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,411 12,096

Pension and postretirement benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2,987 3,620

Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,010 2,962

Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,652 26,365

3M Company shareholders' equity

Common stock par value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 9

Additional paid-in capital. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,643 5,352

Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40,636 39,115

Treasury stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (29,626) (25,887)

Accumulated other comprehensive income (loss) . . . . . . . . . . . . . . . . . . . . (6,866) (7,026)

Total 3M Company shareholders' equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9,796 11,563

Noncontrolling interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 59

Total equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,848 11,622

Total liabilities and equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $36,500 $37,987

Required: a. Compute net operating profit after tax (NOPAT) for 2018. Assume that the combined federal and state statutory tax rate is 22%.

b. Compute net operating assets (NOA) for 2018 and 2017.

c. Compute and disaggregate 3M's RNOA into net operating profit margin (NOPM) and net operating asset turnover (NOAT) for 2018. Demonstrate that RNOA = NOPM × NOAT.

d. Compute net nonoperating obligations (NNO) for 2018 and 2017. Confirm the relation: NOA = NNO + Total equity.

e. Compute return on equity (ROE) for 2018.

f. What is the nonoperating return component of ROE for 2018?

g. Comment on the difference between ROE and RNOA. What inference can we draw from this comparison?

Reference no: EM132746678

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