The document analyzes 3M Company's financial statements and recommends the company as a potential investment. It finds that 3M shows growth across key metrics like profitability and cash management. Specifically, it notes that 3M's quick ratio of 1.127 and current ratio of 1.961 indicate it can pay short-term debts without liquidating inventory. However, its liabilities to equity ratio deteriorated from 0.891 to 1.383 due to increased long-term debt and pension obligations. Overall, the document recommends investing in 3M due to its strong profitability ratios, share buybacks showing internal confidence, and healthy dividend yield beating bank interest rates.

1. I was very pleased to see that 3M Company showed growth and improvement in nearly
all categories across the board. From profitability to cash management, it seems that this
company is well ran and maintained by management. This is not to say that there aren’t any
weak spots or blemishes. We will get to that. First off, I want to expand upon what was found in
terms of liquidity and solvency in determining if the company will be able to pay debt and to
what degree.
When gauging liquidity, I prefer to use the Quick Ratio. This is due to the fact that it may
be difficult and time consuming to sell off inventories in order to pay off debts; that is, unless
they are somehow pulled from the shelves and liquidated. Simply, it is too much to assume that a
company will be able to turn over its inventory in time to pay down debts with strict due dates.
The Quick Ratio at 1.127 basically tells an investor that 3M would be able to pay all of its
liabilities due within the year without having to liquidate inventories. It would pay debt off by
depleting its cash fund, selling all marketable securities on hand that have a maturity within the
year, and collecting on all accounts due to the company. Furthermore, with a Current Ratio much
higher at 1.961, there is a “security blanket” that if more debt shows up unexpectedly or more is
taken on as an emergency, that the company will be able to sell enough of its inventory to pay
this short-term debt off as well.
In terms of solvency, a Times Interest Earned over 65 and trending upward from the year
before is a very healthy sign for the company in terms of ability to pay debt obligations with
profits. Although, when I refer to debt I mean just the interest, as principal is not included in this
calculation. The Liabilities to Equity ratio is a bit more concerning, however. This metric is one
of few for 3M that actually deteriorated from the year prior, or at least trended towards more
alarming for shareholders. It went from 0.891 to 1.383 in one year. This means the company is
now funded more by non-owner financing, and by a hefty margin. This figure rose drastically
due in large part to a 55% increase in long-term debt, equaling $2.4 billion worth of long-term
debt tacked on to the balance reported in 2013. Also, just over $2 billion was paid out to cover
Pension and postretirement benefit obligations, which more than doubled what was reported in
2013. However, I am going to give this company the benefit of the doubt that this new long-term
debt taken on will pay off, and that the profits generated from this debt will exceed the interest
and principal paid out over the lifetime of these loans.

2. So, after scrutinizing over the Financial Reports, metrics, disclosures, and everything
else, it begs the question: would I recommend my company invest in 3M?
I would strongly recommend buying shares of 3M and including them in a portfolio. I
think 3M’s financial statements show promising growth and improvement. I have confidence
that the company can afford to make regular debt payments and uses debt in healthy ways to
finance profitable ventures. One of the strongest signals I saw that would indicate buy would be
the magnitude of shares bought back by the company. This is a strong sign of confidence from
the company internally, as they would not buy back a product that was junk. They would be
doing the exact opposite. Other strong points would be the Return on Equity of 32.38%, Return
on Net Operating Assets of 28.49%, and an exciting 80 cent rise in Basic Earnings per Share.
These profitability ratios all speak to the upside potential that this company has due to nice
margins that may be returned to shareholders consistently.
Sure, there are things I saw while examining the financial statements that were less than
desirable. As mentioned, an additional $2.4 billion in long-term debt in one year is cause for
concern when looking at future cash flow and earnings potential. Also, I don’t typically like
seeing as much in dividends paid out as I feel that reinvesting them within the company via
Retained Earnings generates lucrative compounding interest benefits. On the other hand, many
investors look for a healthy dividend paid out regularly and this alone can keep shareholders
satisfied and more active with their stake in the company. I stand by my assertion that the bright
spots and promising information reported in the 2014 10K far outweigh the few shortcomings or
warning signs that were found upon further inspection. This would be a great investment to add
to our company’s portfolio.
Would 3M make a good personal investment? As previously mentioned, it seems the
company makes it a priority to give back to its shareholders in the form of a dividend payment.
In 2014, dividends were paid out at $3.42 per share of common stock, which equates to 2.06% of
the opening price 3M was listed at on December 31st, 2014, which was $166. A dividend worth
2% of the total share price may not seem significant, but it actually is. At that interest rate, this
investment beats many rates offered by banks by the annual dividend alone. Most people would
love to make 2% off their savings or checking account, and very few traditional bank accounts
today would offer a yield this high. The true value of the investment, however, would come from
Retained Earnings reinvested within the company from Net Income and how the company uses

3. this Retained Earnings balance to maximize shareholder wealth. It seems that this company and
its management can be trusted with making the right business choices strategically and knows
how to make a profit that is very competitive, and that is why I would recommend investing in
3M Company on a personal level also.