Compute and Interpret Measures for DuPont Disaggregation
Analysis
Balance sheets and income statements for 3M Company follow.
3M Company | ||||
---|---|---|---|---|
Consolidated Statements of Income | ||||
For Years Ended Dec. 31 ($millions) | 2015 | 2014 | 2013 | |
Net sales | $30,674 | $31,821 | $30,871 | |
Operating expenses | ||||
Cost of sales | 15,383 | 16,447 | 16,106 | |
Selling, general & administrative expenses | 6,182 | 6,469 | 6,384 | |
Research, development & related expenses | 1,763 | 1,770 | 1,715 | |
Total operating expenses | 23,328 | 24,686 | 24,205 | |
Operating income | 7,346 | 7,135 | 6,666 | |
Interest expense and income | ||||
Interest expense | 149 | 142 | 145 | |
Interest income | (26) | (33) | (41) | |
Total interest expense -net | 123 | 109 | 104 | |
Income before income taxes | 7,223 | 7,026 | 6,562 | |
Provision for income taxes | 2,167 | 2,028 | 1,841 | |
Net income inc. noncontrolling interest | 5,056 | 4,998 | 4,721 | |
Less: Net income attributable to NCI | 8 | 42 | 62 | |
Net income attributable to 3M | $5,048 | $4,956 | $4,659 |
3M Company | |||
---|---|---|---|
Consolidated Balance Sheets | |||
At December 31 ($ millions, except per share amount) | 2015 | 2014 | |
Current assets | |||
Cash and cash equivalents | $1,898 | $1,997 | |
Marketable securities--current | 198 | 1,519 | |
Accounts receivable, net | 4,154 | 4,238 | |
Inventories: | |||
Finished goods | 1,655 | 1,723 | |
Work in process | 1,008 | 1,081 | |
Raw materials and supplies | 855 | 902 | |
Total inventories | 3,518 | 3,706 | |
Other current assets | 1,398 | 1,023 | |
Total current assets | 11,166 | 12,483 | |
Marketable securities--noncurrent | 9 | 15 | |
Investments | 117 | 102 | |
Property, plant and equipment | 23,098 | 22,841 | |
Less: Accumulated depreciation | (14,583) | (14,352) | |
Property, plant and equipment--net | 8,515 | 8,489 | |
Goodwill | 9,249 | 7,050 | |
Intangible assets -net | 2,601 | 1,435 | |
Prepaid pension benefits | 188 | 46 | |
Other assets | 1,053 | 1,769 | |
Total assets | $32,898 | $31,389 | |
Liabilities | |||
Current liabilities | |||
Short-term debt & current portion of LT debt | $2,144 | $186 | |
Accounts payable | 1,774 | 1,907 | |
Accrued payroll | 644 | 732 | |
Accrued income taxes | 332 | 435 | |
Other current liabilities | 2,404 | 2,884 | |
Total current liabilities | 7,298 | 6,144 | |
Long-term debt | 8,753 | 6,705 | |
Pension and postretirement benefits | 3,520 | 3,843 | |
Other liabilities | 1,580 | 1,555 | |
Total liabilities | 21,151 | 18,247 | |
Equity | |||
3M Company shareholders' equity: | |||
Common stock, par value $0.01 per share; | |||
Shares outstanding --2015: 609,330,124; | |||
Shares outstanding --2014: 635,134,594 | 9 | 9 | |
Additional paid-in capital | 4,791 | 4,379 | |
Retained earnings | 36,575 | 34,317 | |
Treasury stock | (23,308) | (19,307) | |
Accumulated other comprehensive income (loss) | (6,359) | (6,289) | |
Total 3M Company shareholders' equity | 11,708 | 13,109 | |
Noncontrolling interest | 39 | 33 | |
Total equity | 11,747 | 13,142 | |
Total liabilities and equity | $32,898 | $31,389 |
a. Compute the DuPont model component measures for profit margin, asset turnover, and financial leverage. Then, compute ROA.
Round profit margin and ROA 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
ROA Answer
%
b. Compute ROE. Confirm that ROE equals ROE computed using the
component measures from part a (ROE = PM x AT x FL).
Round answer to two decimal places (ex: 0.12345 = 12.35%)
Answer
%
c. 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
%
a)
Profit Margin for 2015 = (Net Profit / Total Sales Revenue) * 100
= ($5048 / $30674) * 100
= 16.46%
Assets Turnover = Net Sales / Average Total Assets
= $30674 / (($31389+$32898)/2)
= $30674 / $32144
= 0.954
Financial Leverage Ratio = Total Debt / Stockholder's Equity
= ($8753 + $2144) / $11708
= $10897 / $11708
= 0.9307 times
ROA = Net Income / Average Total Assets
= $5048 / $32144
= 15.70%
b) ROE = Net Income / Stockholder's Equity
= $5048 / $11747
= 42.97%
c) Adjusting ROA = (Net income + Interest) / Average Assets
= ($5048 + $123) / $32144
= $5171 / $32144
= 16.09%
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