Question

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 $31,718
Net income consolidated 5,787
Net income attributable to
3M shareholders 5,779
Assets 33,395 $31,886
Total equity 11,747 13,142
Equity attributable to 3M
shareholders 11,708 13,109
A. Compute return on equity (ROE).
B. Compute the DuPont model component measures for profit margin, asset turnover, and financial leverage.
C. Compute ROA.

Answer 1

A. The return on equity (ROE) for 3M Company is 49.33%. B. The profit margin, asset turnover, and financial leverage for 3M Company can be calculated using the DuPont model. C. The return on assets (ROA) for 3M Company is 17.69%.

Step-by-step explanation:

A. Return on equity (ROE) is calculated by dividing the net income attributable to 3M shareholders by the equity attributable to 3M shareholders. In this case, the net income attributable to 3M shareholders is $5,779 million, and the equity attributable to 3M shareholders is $11,708 million. Therefore, the ROE can be calculated as:

ROE = (Net Income attributable to 3M shareholders / Equity attributable to 3M shareholders) x 100

ROE = ($5,779 million / $11,708 million) x 100 = 49.33%

B. The DuPont model components can be calculated as follows:

- Profit margin = Net income attributable to 3M shareholders / Sales

- Asset turnover = Sales / Average total assets

- Financial leverage = Average total assets / Average equity attributable to 3M shareholders

C. Return on assets (ROA) can be calculated by dividing the net income attributable to 3M shareholders by the average total assets. In this case, the net income attributable to 3M shareholders is $5,779 million, and the average total assets can be calculated as the average of the assets for 2015 and 2014, which is ($33,395 million + $31,886 million) / 2 = $32,641 million. Therefore, the ROA can be calculated as:

ROA = (Net Income attributable to 3M shareholders / Average total assets) x 100

ROA = ($5,779 million / $32,641 million) x 100 = 17.69%