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FM Case Study Final Project

FM Case Study Final Project

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Published by mathew007
FM case study final project
FM case study final project

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Published by: mathew007 on Feb 09, 2008
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09/27/2012

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INTRODUCTION
is considered asone of the mostleading multinationalcompanies in the world and isranked among the top tenU.S. Companies in patentsgranted. In the array othousands of products, 3M products are considered to bethe most innovative. 3M produces more than 200innovative products eachyear. With a ticker symbol of MMM, It is listed on the NewYork, Pacific, Chicago andSwiss stock Exchange.3M, established in 1902, nowoperates in more than 60countries and is engaged in producing more than 75,000 products including adhesives,sand paper, post-it products,abrasives, pharmaceuticals,fluorochemicals, optics,coatings, ceramics, LCDs,cables and other industrialand office equipments. It issaid that a quarter of theworld’s population uses oneor more 3M products dailyand its demand for the products is increasing day byday leading the company tomake solid sales growth andmake further prosperity infuture.With referring to theorganizational growth andsuccess over the past fewyears, the company continuesto invest in growth programsand brand buildingthroughout the portfolio. Itscapital budgeting decisionsregarding research anddevelopment and othecapital expenditures arehoped to increase in everycoming year which requiresthe challenges of meetinggrowing needs for finances,efficient allocation oresources, making goodinvestment decisions andmost importantly maintaininga balance between theobjective of profit andshareholder’s wealthmaximization. It has to havea competitive edge andmaintain itself financiallysound and stable inaccordance with the growingglobal demand of its productsand increasing innovation inthe world.
WHY CAPITALBUDGETING DECISIONSARE IMPORTANT?
CapitalBudgeting
 
decisions are the mostimportant and criticaldecisions that directlyinfluence the companys performance in terms o profitability and liquidity.These decisions can lead thecompany to reach the heightsof success and can even leadthe company to face disaster.So effective capital budgetingdecisions are key to theorganizationssuccess because they involve risk andunderstanding of uncertaintyabout each investment and project, which is usuallydifficult to analyze.
Case study
OVERVIEW / ANALYSIS
Since 3M makes almost 60% of itsrevenue from international marketsthat’s why its primary growth strategyis based on continuing internationalexpansion and producing moreinnovative products into new or existing markets. Currently 3Mmanages its business operations in six business segments i.e. Health care,Industrial and Transportation, Displayand Graphics, Consumer and Office,Electro and communication, Safetysecurity and protection services.
3M’s FINANCIAL MANAGEMENTSTRUCTURE IN TERMS OFCAPITAL BUDGETING DECISIONS
3M’s capital budgeting decisions aremostly related to its R&D,acquisitions, strategic alliances,mergers, investments in plant, property, equipment and usually inavailable for sale securities.3Minvests more than $1 billion per year in research and development andrelated activities, and is awardednearly 600 U.S. patents each year.3M’s capital expenditures totaled$943 million in 2005 and areexpected to increase up to $1.1 billionin the year 2006.
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A brief overviewabout the companys capital budgeting activities over the past fewyears is given below:
In 2005, 3M spent about $26million for capital projects relatedto protecting the environmentwhich are further expected toincrease to $35 million for new programs to build pollutioncontrol devices, modern facilitiesand modify manufacturing processes to minimize waste andreduce emissions.
In 2005, 3M announced to build an LCD optical filmmanufacturing facility in
1
Only few of the materialinvestments have been mentioned inthe analysis to give the readers ideaabout the company’s capital budgeting activities.
 
Poland in order to cater to theLCD-TV market in Europeand to better serve itscustomers.
In 2005, 3M (industrial business segment) acquired aCUNO filtration plant fo purification of fluid andgases for $1.36 billion ($1.27 billion paid in cash and $80million of debt out of whichmostly has been paid) alongwith the intangible assets of $268 million.
In the years 2003, 2004 and2005, 3M business segmentscontinued to buy 100% of outstanding shares fromvarious companies,manufacturing lines andsubsidiaries for the purposeof expansionand otheactivities.
In 2006,companycombined itsindustrialandtransportation businesssegment to increaseefficiency and lower down itsoperational costs.
In 2005, approximately $3.6 billion of cash was used torepurchase 3M commonstock under its repurchaseauthorization and for the payment of dividends andcontributed $788 million toits pension and postretirement plans.
Case study
Page 3 2/9/2008
3M paid its first dividend of 6cents per share in 1916 and sincefrom then, it believes indelivering sustainable and higher returns to the companysshareholder. Its dividendexpenditures totaled $1.268 billion in 2005 ($1.68 per share),$1.125 billion in 2004 ($1.44 per share) and $1.034 billion in 2004($1.32 per share)
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.3M invests large amount oexpenditures in Research and product development. Its totalexpenditures regarding R&Dtotaled $1.242 billion in 2005,$1.194 billion in 2004 and$1.147 billion in 2003 including
2
Dividend per share over theyears have been shown in graphgiven at appendix 2

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