Tree Key Financial Ratios of 3M company which show the evaluation of 3M’s performance and its strategies used over time are: Current Ratio, Profit Margin, and Return on Assets. Analysing 3M’s financial ratios will determine it strengths and weaknesses. These financial ratios are very important to investors and stockholders in making decisions for future investments. Also, this information will be used to analyze trends and to compare the firm’s financials to those of the other firms. Current Ratio is computed by dividing the Current Assets of a company by its Current Liabilities. The ratio is considered as a test of liquidity for a company. 3M Current Ratio for third quarter of 2016 is above 1.90 times, which is in good shape in comparison …show more content…
This is 434.01% lower than that of the Industrial Goods sector, and 423.47% lower than that of Diversified Machinery industry, The Profit Margin for all stocks is 410.02% lower than the firm” (MacroAxis). Comparing net profit margins among this group of companies we see 3M is not very effective at converting sales into profits. Return on Asset (ROA) presents how efficient the management of the company is in creating profit from using all of the assets disposing. It is a helpful ratio to assess the performance of each company’s department as well as to perceive management performance over time. 3M ROA for third quarter of 2016 has of 14.66% comparing with 15.11% for 2015, which decreased with 0.45%. However, 3M ROA of 14.66% get in Return On Asset Input Range of 11.52%-20.52% which shows that ROA is a pretty healthy number. Return on assets shows favorable impact because of net income increasing at a greater rate than assets. Analyzing Current Ratio, Profit Margin, and Return on Assets we can deduce that 3M company looks like it is not a very risky company, with not very high leveraged. We also see that 3M is a growing company and the numbers are looking right for success so long as there is no significant …show more content…
With a market capitalization of over $94 billion, 3M constitutes another wide, seasoned, of long continuance blue-chip company that infiltrates the SPDR S&P 500 ETF with stability. In spite of the earnings fight, these accomplishments probable will not bring changes for 3M shares. Given that 3M creates two-thirds of its sales overseas, and investors will continue to be concern about faintness in the global industrial markets and fight in key emerging markets. The results limited what has been an exhausting year for 3M, which has lost 16% of its value in the past twelve months. And with the company declaring its 2016 EPS planned a range of $8.10 to $8.45 per share, while speeding up its buyback program, 3M shares may improve in the future. Events affecting stock value. Shares of 3M Co. (MMM) are transacting some 2% higher this Tuesday after the Post-it Notes and Scotch tape maker topped Wall Street 's fourth-quarter profit estimates, despite reducing of sales. And whilst 3M 's management thwarted investors in the last time, as they fell down fourth quarter expectations, it would seem they were right. Although Q4 earnings and sales came in higher than expected, both reduced every year, recommending 3M to work in its restructuring which resulted in an
Return on sales is decreasing and is below the industry average, but the goods news is that sales and profits have been increasing each year. However, costs of goods are increasing and more inventory is left over each year causing the return on sales to decrease. For 1995, it was 1.7% which is less than the average of 2.44% but is a lot higher than the bottom 25% of companies as seen in exhibit 3, which actually have negative sales return of 0.7%. Return on equity is increasing each year and at a higher rate than industry average. In 1995, it was 20.7%, greater than the average of 18.25% and close to the highest companies in exhibit 3, of 22.1% showing that the return in investment in the company is increasing, which is good for the owner.
The first method we will review is the accounting method. Through this accounting approach we will analyze specific ratios and their possible impact on the company's performance. The specific ratios we will review include the return on total assets, return on equity, gross profit margin, earnings per share, price earnings ratio, debt to assets, debt to equity, accounts receivable turnover, total asset turnover, fixed asset turnover, and average collection period. I will explain each ratio in greater detail, and why I have included it in this analysis, when I give the results of each specific ratio calculation.
3M Corporation's each division is treated as a profit center with no interdivisional business between the six divisions. The business unit strategy is to "hold" as the company wants to maintain and increase profitability and market share. In terms of corporate strategy, 3M functions as an unrelated diversified corporation with the prime goal to innovate consistently, thereby offering a...
The main contributing factor to the decline in the return on stockholders’ equity (25.37% to 8.73%) was the decline in the profit margin (11.79% vs. 5.08%). The decrease in asset turnover (1.11 to 1.00) made a small contribution to the decline, as did the decline in the debt ratio (48.4% to 41.8%).
It is important for analysts to know that when computing financial ratios, and when doing other financial statement analysis, the financial statement should reflect the accounting principles, and this should be kept in mind. This simply means that assets are generally not reported at their current value. It is also most likely that many brand names and unique product lines will not be included among the assets reported on the balance sheet, even though they may be the most valuable of all the items owned by a company. Classification of Financial Ratio Analysis Financial Ratio Analysis can be classified into two: Classification by use Classification by source Classification by Use Under the classification by use, financial ratio could be classified into various types based on their uses: Liquidity Analysis Ratio: The liquidity financial ratio can be used for three financial operations, which are: Current Ratio: (current Assets )/(Current Liabilities)
Return on assets is a pointer of how beneficial an organization is with respect to its total assets. ROA gives a thought with reference to how proficient management is at utilizing its resources to generate earnings. Figured by dividing an organization's yearly profit by its total assets, ROA is shown as a percentage. Now and then this is alluded to as "return on investment" (Investopedia, 2014). Net income divided by Average total assets. The calculated asset for Johnson & Johnson would be 10,853,000 / 112,127,500 = 9.7%.
II. Company Description 3M, internationally established in 1951, is a $16 billion multinational company with its headquarters in Minnesota, U.S.A., with operations in more than 60 countries, and products sold in nearly 200 countries. (About 3M and MIS Quarterly) 3M offers products and services to the transportation, graphics and safety, healthcare, industrial, consumer and office, electro and communications, and specialty markets. (IBM Case Study on 3M) 3M, a company known for its innovation, constantly encourages employees to create new products. Thirty percent of sales must come, each year, from products less than 4 years old and scientists must spend 15% of their time trying to develop new ideas of their own. In 2001, 3M spent over $1 billion dollars alone on research and development (3M 2001 annual report). 3M's corporate culture revolves around creativity, initiative, innovation, and entrepreneurship. This unique and innovative culture is largely responsible for 3M's success. (MIS Quarterly) In accordance with having a strong need to stimulate innovation and creativity, 3M has a very decentralized corporate structure. It maintains over 40 business units that develop and market various 3M products and services. Each department operates as an individual company with its own processes systems and brands. This structure has afforded the different divisions the autonomy to conduct jobs in their own way using their initiative in a responsible manner. (Harvard Business Review and MIS Quarterly) III. The Problem Although 3Ms decentralized structure was good for innovation, it was an obstacle for the customers. Customers were seeing the 3M business units as a set of individual business instead of one unified company. Each business unit recorded its sales and product and customer information in its own database.
Financial Ratios unfolds the strengths and weaknesses of the company. It provides quantifiable metrics which is beneficial for comparative analysis.
Monea, M. (2009). Financial ratios – Reveal how a business is doing? Annals of the University Of Petrosani Economics, 9(2), 137-144. Retrieved from http://www.upet.ro/eng
Current ratio may be defined as the relationship between Current assets and Current liabilities. This is, also known as a working capital ratio, because it is related to the working capital of the firm. The current ratio is an important and most commonly used ratio to measure the short-term financial strength or solvency of the firm. It is calculated by dividing the total of current assets by total of current liabilities.
Ratio analysis are useful tools when judging the performance of a company by weighing and evaluating the operating performance (Block-Hirt). There are 13 significant ratios that can separate by four main categories, profitability, asset utilization, liquidity and debt utilization ratios. The ratio analysis covered here consists of eight various ratios with at least one from each of these main categories. These ratios were used to compare and contrast the performance of Verizon versus AT& T over the years 2005 and 2006.
Ratios traditionally measure the most important factors such as liquidity, solvency and profitability, as well as other measures of solvency. Different studies have found various ratios to be the most efficient indicators of solvency. Studies of ratio analysis began in the 1930’s, with several studies of the concluding that firms with the potential to file bankruptcy all exhibited different ratios than those companies that were financially sound.
Current ratio is a ratio to measure a company’s ability to pay short-term obligations. In other words, how many assets are available to cover short-term liabilities. Current ratio can also be said to be a form to measure a company’s margin of
Net profit ratio has also been showing a fluctuating trend, it was very high in the year 2012 and is low in the year
Any successful business owner or investor is constantly evaluating the performance of the companies they are involved with, comparing historical figures with its industry competitors, and even with successful businesses from other industries. To complete a thorough examination of any company's effectiveness, however, more needs to be looked at than the easily attainable numbers like sales, profits, and total assets. Luckily, there are many well-tested ratios out there that make the task a bit less daunting. Financial ratio analysis helps identify and quantify a company's strengths and weaknesses, evaluate its financial position, and shows potential risks. As with any other form of analysis, financial ratios aren't definitive and their results shouldn't be viewed as the only possibilities. However, when used in conjuncture with various other business evaluation processes, financial ratios are invaluable. By examining Ford Motor Company's financial ratios, along with a few other company factors, this report will give a clear picture of how the company is doing now and should do in the future.