Direct Computation of Nonoperating Return Balance 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 In 2018, 3M’s return on equity (ROE) is 50.09% and its return on net operating assets (RNOA) is 25.89%. Required a. Compute net nonoperating expense (NNE) and net operating profit after tax (NOPAT). Assume a tax rate of 22%. Note: Round answers to the nearest million. 2018 NNE: $Answer million 2018 NOPAT: $Answer million b. Compute net nonoperating obligations (NNO). 2018 NNO: $Answer million 2017 NNO: $Answer million

Direct Computation of Nonoperating Return Balance 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 In 2018, 3M’s return on equity (ROE) is 50.09% and its return on net operating assets (RNOA) is 25.89%. Required a. Compute net nonoperating expense (NNE) and net operating profit after tax (NOPAT). Assume a tax rate of 22%. Note: Round answers to the nearest million. 2018 NNE: $Answer million 2018 NOPAT: $Answer million b. Compute net nonoperating obligations (NNO). 2018 NNO: $Answer million 2017 NNO: $Answer million

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

Direct Computation of Nonoperating Return
Balance 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

In 2018, 3M’s return on equity (ROE) is 50.09% and its return on net operating assets (RNOA) is 25.89%.

Required

a. Compute net nonoperating expense (NNE) and net operating profit after tax (NOPAT). Assume a tax rate of 22%.
Note: Round answers to the nearest million.
2018 NNE: $Answer

million
2018 NOPAT: $Answer

million

b. Compute net nonoperating obligations (NNO).
2018 NNO: $Answer

million
2017 NNO: $Answer

million

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