3M Company had the net income of $4,570 million, taxes of $1,130 million, and the interest expense of $368 million in 2019. Its total assets are $44,659 million and total equities are $10,126 million in 2019. 

a.      Compute its Return on Equity (ROE) in 2019.

 

b.      Compute its Return on Assets (ROA) in 2019.

 

c.      If the industry average ROE is 8.98% and the industry average ROA is 3.92%, how did 3M Company perform in terms of ROE and ROA when compared to the industry averages?

 

Question a

3M Company's Return on Equity (ROE) in 2019 = {Net Income/ Shareholder Equity} X 100

={$4,570 Million/$10,126 Million} X 100

=0.4513 X100

=45.13%

Question b

3M Company's Return on Assets (ROA) in 2019 = Net Income/ Total Assets

=$4,570 Million/$44,659 million

=0.1023 X100

=10.23%

Question c

• Assuming the industry average ROE was 8.98%, this presumption can be interpreted to mean that 3M Company had a high ROE than most companies. This is because most of the companies in the industry got an ROE figure that was very close to 8.98%.
• Again, if we hypothesize that the industry average ROA is 3.92%, this conjecture can be interpreted to mean that 3M Company had a higher ROA than most companies. An average of 3.92% means that most companies' ROA revolved around 3.92%.