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financial ratio analysis




Question#5.pdf Download Attachment;E. Financial Ratio Analysis for the Profitability Ratios;1) Using selected Profitability Ratios, conduct a Trend Analysis over the past three years;of the data for the company you are analyzing.;2) Using selected Profitability Ratios, conduct a Comparative Analysis (Benchmarking);by comparing the ratios to the Industry Leader (Sales 2013) or #2 in the Industry.;3) This information is readily available on S & P Net Advantage Database.;3. ASSET MANAGEMENT ANALYSIS & LIQUIDITY ANALYSIS;A. Repeat 2.E.I) - 2.E.2) for ratio analysis of Asset Management Ratios (Activity Ratios) and for;the Liquidity Ratios.;B. This information is readily available on S & P Net Advantage Database.;4. CAPITAL STRUCTURE CHARACTERISTICS;A. Repeat 2.E.I) - 2.E.2) for ratio analysis of the Capital Structure Ratios (Financial Leverage).;B. This information is readily available on S & P Net Advantage Database.;/"";N/;MANAGEMENT - Reference the Warren Buffett material discussed in class.;6. VALUATION ANALYSIS - As per the methodology discussed in class.;7. THE INVESTMENT DECISION - Based on your finding in 1. - 6. make an Investment Decision on;whether you would purchase their Common Stock at their current price and briefly state why.;The;Warren Buffett;Way;Investment Strategies;of the;World's Greatest;Investor;ROBERT G. HAGSTROM, JR.;vfC;'$m;- ^iT**,':V;I;'.;v,r:-j"-j;S.,^;^.:- J\,->.-??;JOHN WILEY & SONS, INC.;New York Chichester Brisbane Toronto Singapore;The Warren Buffett Way;Buying a Business;MANAGEMENT TENETS;ten it has to not only retain all of its earnings but also borrow;money or issue equity to finance this growth.;In the third stage, maturity, a company's growth rate slows and;die company begins to generate more cash than it needs for development and operating costs. In the last stage, decline, the company suffers declining sales and earnings but continues to;generate excess cash. It is in phases three and four, but particularly three, that the question arises: How should those earnings be;allocated?;If die extra cash, reinvested internally, can produce an aboveaverage return on equity, a return that is higher than the cost of;capital, then the company should retain all of its earnings and;reinvest them. That is the only logical course. Retaining earnings;in order to reinvest in the company at less than the average cost of;capital is completely irrational. It is also quite common.;A company that provides average or below-average investment;returns but generates cash in excess of its needs has three options;(1) It can ignore the problem and continue to reinvest at below;average rates, (2) it can buy growth, or (3) it can return the;money to shareholders. It is at this crossroad that Buffett keenly;focuses on management's behavior. It is here that management;will behave rationally or irrationally.;Generally, managers who continue to reinvest despite belowaverage returns do so in the belief that the situation is temporary.;They are convinced that with managerial prowess, they can improve their company'-s profitability. Shareholders become mesnerized with management's forecast of improvements. If a;ornpany continually ignores this problem, cash will become an;ncreasingly idle resource and stock price will decline. A company;vith poor economic returns, excess cash, and a low stock price;vill attract corporate raiders, which often is the beginning of the;nd of current management tenure. To protect themselves, exc 11 lives frequently choose the second option instead: purchasing;'.rowth by acquiring another company.;Announcing acquisition plans has the effect of exciting shareholders and dissuading corporate raiders. However, Buffett is;skeptical of companies that need to buy growth. For one thing;(.'.inwtli often comes at an overvalued price. For another, a company that, must integrate and manage a new business is apt to;make mistakes (hat could be costly to shareholders.;The highest compliment Buffett can pay a manager is that the;manager unfailingly behaves and thinks like an owner of the company. Managers who behave like owners tend not to lose sight of;I lie company's prime objectiveincreasing shareholder value;:md they tend to make rational decisions that further that goal.;Kuffett also greatly admires managers who take seriously their responsibility to report fully and genuinely to shareholders, and;who have the courage to resist what he has termed the "institulional imperative"blindly following industry peers.;In considering a business acquisition, Buffett looks hard at the;quality of management. He tells us that the companies Berkshire;purchases must be operated by honest and competent people;managers for whom he can feel admiration and trust. Specifically;he considers these main areas;1. Is management rational?;2. Is management candid with the shareholders?;3. Does management resist the institutional imperative?;Rationality;ic most important management act is allocation of the;>mpany's capital. It is the most important because allocation of;p i i a l, over time, determines shareholder value. Deciding what;< ! w i t h the company's earningsreinvest in the business or;(i n 11 money to shareholdersis, in Buffett's mind, an exercise;loiu'e and rationality. "Rationality is the quality that Buffett;i n k s distinguishes his style with which he runs Berkshireand;< quality lie often finds lacking in other corporations," writes;< 1.1101 n is of Fortune.;Tin question of where to allocate earnings is linked to where;i l i. u i i n n p a i i v is in its life cycle. As a company moves through its;i. M m. m i. Hie i yi'le, its growth rates, sales, earnings, and cash;Hun-, i h.uii'v dramatically. In the development stage, a company;I. I M - S money a-, ii develops products and establishes markets. Dur1115. t h e iicxl M. I J M -, rapid growth, t h e company is profitable but;r.iMiviiu! M I last i h a l ihe company (a n n u l support the growth, olHO;81;The Warren Buffett Way;Buying a Business;In Buffett's mind, the only reasonable and responsible course;for companies that have a growing pile of cash that cannot be;reinvested at above-average rates is to return that money to the;shareholders. For that, there are two methods available: raising;the dividend or buying back shares.;With cash in hand from their dividends, shareholders have the;opportunity to look elsewhere for higher returns. On the surface;this seems a good deal, and therefore many people view increased;dividends as a sign of companies that are doing well. Buffett believes this is so only if investors can get more for their cash than;the company could generate if it retained the earnings and reinvested in the company.;Over the years, Berkshire Hathaway has earned very high returns from its capital and has retained all of its earnings. With;such high returns, shareholders would have been ill served if they;were paid a dividend. Not surprisingly, Berkshire does not pay a;dividend. And that's just fine with the shareholders. In 1985;Buffett asked shareholders which of three dividend options they;preferred: (1) continuing to reinvest all earnings and pay no cash;dividend, (2) pay out modest dividends, 5 percent to 15 percent;of operating earnings, (3) pay out dividends at a rate typical of;American industry, 40 percent to 50 percent of earnings. A very;large majority of those who responded88 percentpreferred;to continue the existing policy. The ultimate test of owners' faith;is allowing management to reinvest 100 percent of earnings, Berkshire owners have a lot of faith in Buffett.;If the real value of dividends is sometimes misunderstood, the;second mechanism for returning earnings to the shareholders;stock repurchaseis even more so. The benefit to the owners is;in many respects, less direct, less tangible, and less immediate.;When management repurchases stock, Buffett feels that die reward is twofold. If the stock is selling below its intrinsic value, then;purchasing shares makes good business sense. If a company's;stock price is $50 and its intrinsic value is $100, then each time;management buys its stock, they are acquiring $2 of intrinsic value;for every $1 spent. Transactions of this nature can be very profitable for the remaining shareholders.;Furthermore, Buffett says, when executives actively buy the;company's slock in the market, they are demonstrating that they;have (be best ink-rests ol"their owners at hand, rather than a care-;less need to expand the corporate structure. That kind of stance;sends good signals to the market, attracting other investors looking for a well-managed company that increases shareholders;wealth. Frequently, shareholders are rewarded twiceonce from;die initial open market purchase and then subsequently as investor interest has a positive effect on price.;Buffett holds in high regard managers who report their companies' financial performance fully and genuinely, who admit mistakes as well as share successes, and are in all ways candid with;shareholders. In particular, he respects managers who are able to;communicate the performance of dieir company without hiding;behind generally accepted accounting principles (GAAP).;Financial accounting standards only require disclosure of business information classified by industry segment. Some managers;exploit this minimum requirement and lump together all of the;company's businesses into one industry segment, making it difficult for owners to understand die dynamics of their separate business interests. "What needs to be reported," argues Buffett, "is;any's economic performance. Buffett admires die CEO who;is ai'le to report to his shareholders in the same candid fashion.;1 ! (control their lust for activity. Such hyperactivity often finds its;i ii 11 let in business takeovers. Second, most managers are constantly;c iiinparing their business's sales, earnings, and executive compen',,il ion i<> other companies within and beyond their industry. These;i ni|>arisoiis, B u l f d t notes, invite corporate liyperactivity. 1-asily;H4;85;The Institutional Imperative;The Warren Buffett Way;Buying a Business;Buffett believes that most managers have an exaggerated sense of;(.heir own management capabilities.;Another common problem is poor allocation skills. As Buffett;points out, CEOs often rise to their position by excelling in other;areas of the company, including administration, engineering;marketing, or production. Because they have little experience in;allocating capital, most CEOs, instead, turn to their staff members, consultants, or investment bankers for advice. Here the institutional imperative begins to enter the decision-making process.;If the CEO craves a potential acquisition that requires a 15 percent return on investment to justify the purchase, it is amazing;Buffett points out, how smoothly his troops report back to him;that the business can actually achieve 15.1 percent.;The final justification for the institutional imperative is mindless imitation. If companies A, B, and C are behaving in a similar;manner, then, reasons the CEO of company D, it must be all right;for our company to behave the same way. It is not venality or stupidity, Buffett claims, that positions these companies to fail.;Rather, it is the institutional dynamics of the imperative that make;it. difficult to resist doomed behavior. Speaking before a group of;Notre Dame students, Buffett displayed a list of thirty-seven failed;investment banking firms. All of these firms, he explained, failed;even though the volume of the New York Stock Exchange multiplied fifteenfold. These firms were headed by hard-working individuals with very high IQs, all of whom had an intense desire to;succeed. Buffett paused, his eyes scanned the room. "You think;about that," he said sternly. "How could they get a result like that?;I ' l l tell you how," he said, "mindless imitation of their peers."15;Buffett has been fortunate to work with some of the brightest;managers in corporate America, including Tom Murphy and Dan;Burke at Capital Cities/ABC, Roberto Goizueta and Donald;Koongh at Coca-Cola, and Carl Reichardt at Wells Fargo. However;i i ici(is a point where even the brightest and most capable manager;cannot, rescue a difficult business. "If you put those same guys to;work in a buggy whip company," Buffett says, "it wouldn't have;made much difference."16 What Buffett is saying is that no matter;how impressive management is, he will not invest in people alone.;"When a management with a reputation for brilliance tackles a;business with a reputation for poor fundamental economics," he;writes, "it is the reputation of the business that stays intact."17;For the most part, valuing the ability of managers is a subjective;effort that defies quantification. Nonetheless, there are some;quantifiable measurements available. And they are the same measures by which economic performance is gauged: return on equity, cash flow, and operating margins.;Customarily, analysts measure annual company performance by;looking at earnings per share. Did they increase over last year?;Arc they high enough to brag about? Buffett considers earnings;JUT share a smokescreen. Since most companies retain a portion;i >!' t lu:ir previous year's earnings as away of increasing their equity;t>,isc, he sees no reason to get excited about record earnings per;-.h.iic. There is nothing spectacular about a company that in1 1 rases earnings per share by 10 percent if, at the same time, it is;(Mowing its equity base by 10 percent. That's no different, he explains, (corn putting money in a savings account and letting the;inicrcsi accumulate and compound.;" I ' l i r primary test of managerial economic performance," hi;86;87;FINANCIAL TENETS;The financial tenets by which Buffett values'both managerial excellence and economic performance are all grounded in some;typically Buffetdike principles. For one thing, he does not take;yearly results too seriously. Instead, he focuses on four- or five-year;averages. Oftentimes, he notes, profitable business returns might;not coincide with the time it takes for the planet to circle the sun.;He also has little patience with accounting sleight-of-hand that;produces impressive year-end numbers but little real value. Instead, he is guided by these principles;1.;2.;3.;4.;Focus on return on equity, not earnings per share.;Calculate "owner earnings" to get a true reflection of value.;Look for companies with high profit margins.;For every dollar retained, make sure the company has created at least one dollar of market value.;Return on Equity;i;View Full Attachment;Question5&6.docx Download Attachment;Good evening;1.;Could you revise the part A. and go over and check Part B where;I added 2 more paragraphs from assign#2;2.;Could you help me please Question 5 and 6.;Question #5: Management-is written, based on "the warren buffet;way" text on the back of assignment question which I attached.;Question #6: The Investment Decision- is just plugging in the;figures. (Rf is 2.25% I looked it up on Please use;the attached Valuation Analysis PDF document !;Thank you so much!;I need it done as soon as possible.;A. The Economic Outlook Global and National for 2014 to 2018;Part A has to mainly be about 3 years (2014-2017)!;Despite setbacks due to great recession experience since 2008 global financial;crisis, an uneven global recovery continues. North America expects its annual GDP;growth rate in 2014-1018 to be near 3%, while South America will have it around 2.5 to;3.5%, Europe 2%, China continues to lead the countries with its annual growth rate;continuing at 7% and other international markets expecting to grow slightly better at;3.5%.;In advanced economies, high private and public debt will have detrimental effect on;economic recoveries and growth whereas emerging markets are lowering their future;growth expectations. Global growth remains vulnerable to various risks effecting lower;growth, however, the pace of recovery will be country specific. India, Thailand, Nigeria;Venezuela, Argentina, Turkey, Egypt, South Africa and Brazil undergoing through huge;political and social unrest inside that are significantly likely to influence economic;development landscape of the global economy. Tension between Russia and U.S. and;E.U. over Crimea and Ukraine issues, China with Japan and other neighboring countries;further affects global economic development.;Over the medium term, it is expected that due to protracted weak demand in;advanced economies and emerging markets slow growth could result in lower growth;everywhere, including, in part, through negative supply-side effects. Global growth;therefore will have to be led by the developed markets (IMF - World Economic Outlook;October, 2014).;For the U.S., the Congress Budget (CBO), the 2008 housing and financial crisis will;fade, housing industry will be restored by increased availability of credit effecting;increase in real estate prices and consequently stock prices. These factors would build;momentum of growth in income, employment, business investment and consumer;spending.;I added this part from my assignment2 According to the U.S. Department of;Commerce (2014), the Gross Domestic Product (GDP) increased by 4.6 % in the second;three month period. This was from a decrease in GDP growth by 2.1 % in the first quarter;of 2014. The calculation of GDP in this perspective is the value of commodities produced;in one year. The values of GDP have adjusted for inflation hence qualifies as real GDP.;The growth in GDP is attributed to the growth of exports and investment in inventory.;There was also an increased investment in non-residential products, increased spending;by federal and local governments.;(I also added this paragraph)There was an increased trend in the order for food;and fuel. In addition, there was an increasing demand for residential products. The;increased order for goods was as a result of an increase in effectual demand from an;increase in the amount of income that people would dispose off. The disposable proceeds;of persons in the U.S. in the first three month increased by 3.4 % and rose again to 4.2 %;within the quarter. Savings, just as consumption, went up. In the very initial quarter, the;savings rate was 4.9 %, while in the second three consecutive months the savings rate;was 5.3 % (U.S. Department of Commerce, 2014).;This indicates that the economy in the U.S. is in an upward trend. U.S. expects to;grow at an average of 3.6 percent a year from 2015 through 2018. However, currently the;unemployment rate is above 7 percent and is expected to fall to 5 percent only at the;end of 2017. Inflation is expected to rise and reach to 2% in 2015. The interest rate on 3;month Treasury bills which has hovered near zero for the past several years is expected to;climb to 4 percent by the end of 2017, and the rate on 10-year Treasury notes is projected;to rise from 2.1 percent in 2013 to 5.2 percent in 2017 as a consequence to increase in;credit demand (CBO, October 2014).;B. Industry Outlook Diversified Manufacturing and Technology Companies;Around the world manufacturing and technology driven companies are building;strategies to succeed in ever competitive business environment characterized by;explosive developments in technology, material science, advanced manufacturing and;synergistic operating models. These emerging technologies are redefining how the;manufacturing was and are changing the way manufacturing companies compete and;succeed. Predictive analytics that monitor evolving customer preferences, new;OEM/supplier collaborative innovation models, 3D printing and new additive;manufacturing capabilities, technology platforms that support real-time business;intelligence, and resilient/transparent supply chains that create virtual verticallyintegrated manufacturing networks are some of the proactive strategies being adopted by;manufacturing companies. (KPMG Global Manufacturing Outlook, May 2014).;There is an upbeat mood in the manufacturing sector in the U.S. "The economics of;the world are changing in favor of U.S. manufacturing," says Hal Sirkin, a Chicago-based;senior partner of Boston Consulting Group. The factors that Sirkin attributes for this;trend change are that in U.S. costs are getting more competitive, companies are eager to;produce near their customers, overall political climate towards manufacturing seems to;improve and worldwide foreign companies are betting on U.S. manufacturing (Hagerty;J.R., WSJ, June 2014).;Further, Federal Reserve has released data on industrial production and capacity;utilization on October 16, 2014 signifying growth in manufacturing production up by 0.5;percent with widespread gains across its components. It further disclosed that output;increased at an annual rate of 3.5 percent in the third quarter of 2014, on average, it has;advanced at a pace of about 4 percent over the past four quarters. The factory operating;rate rose 0.2 percentage point in September to 77.3 percent, a rate 1.4 percentage points;below its long-run average (Federal Reserve U.S. publication, October 2014).;(I added this paragraph)In order to carry out analysis of current performance in the;manufacturing industry, we carried out current performance review of three diversified;manufacturing and technology companies namely 3 M Company, General Electric;Company and Siemens AG and also the outlook of these companies towards future;performances.;(I added this paragraph) GE is one of the largest and most diversified infrastructure;and financial services corporations in the world. With products and services ranging;from aircraft engines, power generation, oil and gas production equipment, and;household appliances to medical imaging, business and consumer financing and;industrial products (Form 10Q, Q3, 2014). 3M is a diversified global manufacturer;technology innovator and marketer of a wide variety of products and services. 3M;manages its operations in five operating business segments: Industrial, Safety and;Graphics, Electronics and Energy, Health Care, and Consumer (Form 10Q, Q3, 2014).;Siemens is a global powerhouse positioned along the electrification value chain from;power generation, transmission and distribution to smart grid solutions and the efficient;application of electrical energy as well as in the areas of medical imaging and in-vitro;diagnostics (;With growth in income, employment, business investment and consumer spending;and the U.S. expecting to grow at an average of 3.6 percent a year from 2015 through;2018, 3M can expect its diversified business to grow even further in the next three to;four years time.;View Full Attachment;ValuationAnalysis.pdf Download Attachment;3M COMPANY NYSE-MMM;TIMELINESS;SAFETY;TECHNICAL;3;1;3;High;Low;Raised 9/12/14;RECENT;PRICE;85.4;59.7;90.3;73.3;87.4;69.7;Median: 15.0 P/E RATIO;RATIO;YLD;137.68 P/E 18.1(Trailing: 19.4) RELATIVE 1.05 DIVD 2.5%;88.4;67.1;97.0;72.9;84.8;50.0;84.3;40.9;91.5;68.0;98.2;68.6;95.5;82.0;140.4;94.0;147.9;123.6;Target Price Range;2017 2018 2019;LEGENDS;12.0 x Cash Flow p sh.... Relative Price Strength;2-for-1 split 9/03;Options: Yes;Shaded area indicates recession;New 7/27/90;Raised 9/19/14;BETA.95 (1.00 = Market);2017-19 PROJECTIONS;VALUE;LINE;200;160;100;80;60;50;40;30;Annl Total;Price;Gain;Return;High 185 (+35%) 10%;Low 150 (+10%);5%;Insider Decisions;to Buy;Options;to Sell;N;0;8;8;D J;0 0;0 11;0 4;F;0;1;9;M;0;0;0;A;0;1;1;M;0;4;6;J;0;0;0;J;0;2;3;20;% TOT. RETURN 9/14;Institutional Decisions;4Q2013;1Q2014;2Q2014;577;532;517;to Buy;to Sell;693;724;704;Hlds(000) 456961 447793 444776;Percent;shares;traded;THIS;STOCK;18;12;6;1 yr.;3 yr.;5 yr.;1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015;18.69 19.64 21.11 20.55 20.94 23.25 25.45 28.05 31.21 34.49 36.43 32.54 37.45 42.61;2.98;3.27;3.64;3.22;3.75;4.29;5.07;5.55;6.71;7.29;6.65;6.12;7.43;7.94;1.87;2.11;2.32;1.79;2.50;3.02;3.75;4.12;5.06;5.60;4.89;4.52;5.75;5.96;1.10;1.12;1.16;1.20;1.24;1.32;1.44;1.68;1.84;1.92;2.00;2.04;2.10;2.20;1.78;1.30;1.41;1.25;.98;.86;1.19;1.25;1.59;2.01;2.12;1.27;1.53;1.98;7.38;7.89;8.24;7.78;7.68 10.06 13.20 13.39 13.56 16.56 14.24 17.96 22.00 22.19;803.85 797.42 792.17 782.61 779.96 784.12 786.29 754.54 734.36 709.16 693.54 710.60 711.98 694.97;22.3;20.8;19.9;31.1;24.4;22.8;21.9;18.9;15.2;15.0;14.6;14.1;14.5;14.5;1.16;1.19;1.29;1.59;1.33;1.30;1.16;1.01;.82;.80;.88;.94;.92;.91;2.6%;2.6%;2.5%;2.2%;2.0%;1.9%;1.8%;2.2%;2.4%;2.3%;2.8%;3.2%;2.5%;2.5%;CAPITAL STRUCTURE as of 6/30/14;Total Debt $6973 mill. Due in 5 Yrs $4200 mill.;LT Debt $5325 mill.;LT Interest $155 mill.;(23% of Capital);Uncapitalized leases $216 mill.;Pension Assets-12/13 $19.6 bill. Oblig. $20.3 bill.;Preferred Stock None;Common Stock 647,969,147 shares;MARKET CAP: $89.2 billion (Large Cap);CURRENT POSITION 2012;2013 6/30/14;($MILL.);Cash Assets;4531;3337;3009;Receivables;4061;4253;4759;Inventory (FIFO);3837;3864;4093;Other;1201;1279;1332;Current Assets;13630 12733 13193;Accts Payable;1762;1799;1844;Debt Due;1085;1683;1650;Other;3353;4016;3546;Current Liab.;6200;7498;7040;20011;30.6%;999;2990;33.0%;14.9%;2649;727;10378;27.3%;28.8%;18.0%;38%;21167;31.1%;986;3199;34.7%;15.1%;1877;1309;10100;28.5%;31.7%;18.9%;40%;22923;32.3%;1079;3851;30.6%;16.8%;1623;1047;9959;35.4%;38.7%;24.9%;36%;24462;29.7%;1072;4096;33.9%;16.7%;4476;4019;11747;26.6%;34.9%;23.1%;34%;25269;25.2%;1153;3460;33.4%;13.7%;3759;5166;9879;23.6%;35.0%;20.9%;40%;23123;25.8%;1157;3193;32.2%;13.8%;5898;5097;12764;18.4%;25.0%;13.8%;45%;26662;26.4%;1120;4169;26.2%;15.6%;6126;4183;15663;21.5%;26.6%;17.0%;36%;29611;25.0%;1236;4283;27.8%;14.5%;6799;4484;15420;22.0%;27.8%;17.7%;36%;VL ARITH.*;INDEX;21.5;112.6;117.5;9.5;84.2;104.4;VALUE LINE PUB. LLC;17-19;43.52 46.54 49.55 53.15;8.34;9.09;9.90 10.70;6.32;6.72;7.45;8.20;2.36;2.54;3.42;3.64;2.16;2.51;2.55;2.60;25.58 26.39 27.95 30.85;687.09 663.30 650.00 640.00;14.1;17.0 Bold figures are;Value Line;.90;.95;estimates;2.7%;2.2%;Sales per sh;Cash Flow per sh;Earnings per sh A;Divds Decld per sh B;Capl Spending per sh;Book Value per sh;Common Shs Outstg C;Avg Annl P/E Ratio;Relative P/E Ratio;Avg Annl Divd Yield;64.05;13.15;10.50;4.30;2.75;43.10;615.00;16.0;1.00;2.6%;29904;26.0%;1288;4444;29.0%;14.9%;7430;4916;17575;20.1%;25.3%;16.0%;37%;Sales ($mill);Operating Margin;Depreciation ($mill);Net Profit ($mill);Income Tax Rate;Net Profit Margin;Working Capl ($mill);Long-Term Debt ($mill);Shr. Equity ($mill);Return on Total Capl;Return on Shr. Equity;Retained to Com Eq;All Divds to Net Prof;39400;28.0%;1500;6600;30.0%;16.8%;7875;2100;26500;23.0%;25.0%;15.0%;40%;30871;26.0%;1371;4659;28.1%;15.1%;5235;4326;17502;21.6%;26.6%;16.7%;37%;32200;26.5%;1400;5025;29.0%;15.6%;5850;4225;18175;22.5%;27.5%;15.5%;45%;34000;27.0%;1425;5425;29.0%;16.0%;6300;3225;19750;24.0%;27.5%;15.5%;43%;BUSINESS: 3M Company is a diversified manufacturer and technology company with operations in more than 70 countries. It is;among the leading manufacturers in many of the markets it serves.;The conglomerate currently operates five segments: Industrial;(33.7% of 2013 sales), Safety & Graphics (18.0%), Electronics;Energy (17.2%); Health Care (17.0%), Consumer (14.1%). 2013 re-;search & development: $1.7 billion, 5.6% of sales. Employs about;88,700. Officers & directors own less than 1.0% of common stock;State Street 7.6%, BlackRock, 6.1%, The Vanguard Group, 5.7%;(3/14 proxy). Chairman, President & CEO: Inge G. Thulin. Incorporated: DE. Address: 3M Center, St. Paul, MN 55144. Telephone: 651-733-1110. Internet:;3M Company had a very good first;half, and we expect the conglomerate;will report similarly strong results in;the second half. (Management is set to;announce third-quarter earnings later this;month on October 23rd.) Overall, the companys performance in the first six months;QUARTERLY SALES ($ mill.);CalFull of 2014 was solid, as sales rose 4%, share;endar Mar.31 Jun.30 Sep.30 Dec.31 Year earnings climbed 11%, and management;2011 7311 7680 7531 7089 29611 returned $4.3 billion to MMM holders via;2012 7486 7534 7497 7387 29904 dividends and buybacks. In the recently;2013 7634 7752 7916 7569 30871 ended September period, we expect sales;2014 7831 8134 8235 8000 32200 climbed right around 4%, thanks to growth;2015 8325 8525 8650 8500 34000 in all business groups and geographies.;EARNINGS PER SHARE A;CalFull Meanwhile, share net probably rose 11%;endar Mar.31 Jun.30 Sep.30 Dec.31 Year thanks to wider margins and the impact of;2011;1.49;1.60;1.52;1.35;5.96 ongoing repurchasing activity.;2012;1.59;1.66;1.65;1.41;6.32 Our near- and long-term estimates;2013;1.61;1.71;1.78;1.62;6.72 have not changed much. We still think;2014;1.79;1.91;1.95;1.80;7.45 2014 sales will be close to $8.2 billion, and;2015;1.95;2.10;2.15;2.00;8.20;share earnings should be in the neighborQUARTERLY DIVIDENDS PAID B;CalFull hood of $7.45, which is in line with manendar Mar.31 Jun.30 Sep.30 Dec.31 Year agements guidance range of $7.30-$7.55.;2010.525;.525;.525;.525;2.10 We are looking for growth from each of the;2011.55;.55;.55;.55;2.20 conglomerates five segments, with Elec2012.59;.59;.59;.59;2.36 tronics & Energy and Health Care leading;2013.635;.635;.635;.635;2.54 the way. Better productivity fueled by;2014.855;.855;.855;ongoing investments ought to help widen;operating margins, too, which will translate into outsized bottom-line growth. Profit advances should remain robust between;now and 2017-2019, too, thanks to the;aforementioned investments in things like;R&D and geographic expansion.;This blue chip is now ranked to perform in line with the broader market;in the year ahead. Prior to the recent;downturn in the U.S. equity market;MMM stock was on a very nice run. It lost;a good deal of ground when looking at the;52-week high of $148 that was hit in the;middle of September, but it is still trading;well above the 52-week low of $118. There;could be some more upward pressure;placed on this equity if the conglomerate;continues to report healthy profit advances;in the coming quarters. Moreover, the;quality of earnings here is very good;which could attract even more attention.;It is easy to make a case for these;shares. They are pretty stable, the dividend yield is above average, and long-term;capital appreciation possibilities are;decent, even though our estimates tend to;be on the conservative side.;Erik A. Antonson;October 17, 2014;ANNUAL RATES Past;of change (per sh);10 Yrs.;Sales;7.5%;Cash Flow;8.5%;Earnings;10.0%;Dividends;6.5%;Book Value;11.5%;Past Estd 11-13;5 Yrs.;to 17-19;5.5%;7.5%;4.0%;8.0%;4.0%;8.5%;4.5% 11.0%;11.0%;6.5%;(A) Diluted earnings. Excludes nonrecurring;98, (43), 99, 7, 00, (10), 01, (5), 10;(12). Excludes discontinued: 06, 47, 07;60. Earnings may not sum due to rounding or;changes in shares outstanding. Next earnings;report due late October.;(B) Dividends historically paid mid-March;June, September, and December. Dividend;reinvestment plan available.;(C) In millions, adjusted for stock split.;2014 Value Line Publishing LLC. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind.;THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscribers own, non-commercial, internal use. No part;of it may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product.;Companys Financial Strength;Stocks Price Stability;Price Growth Persistence;Earnings Predictability;A++;95;80;85


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