Financial Reporting Financial Statement Analysis and Valuati

Financial Reporting, Financial Statement Analysis, and Valuation: A STRATEGIC PERSPECTIVE 9e

12.10 Calculating Free Cash Flows. The 3M Company is a global diversified technology company active in the following product markets: consumer and office; display and graphics; electronics and communications; health care; industrial; safety, security, and protection services, and transportation. At the consumer level, 3M is probably most widely known for products such as Scotch Brand transparent tape and Post-it notes. Exhibit 12.12 presents information from the statement of cash flows and income statement for the 3M Company for 2013 to 2015. From 2013 through 2015, 3M decreased cash and cash equiva- lents. The interest income reported by 3M pertains to interest earned on cash and marketable securities. 3M holds only small amounts of investments in marketable securities. 3M\'s income tax rate is 35%

Solution

a. Free cash flow for debt and equity stake holders Item 2015 2014 2013 Cash flow from operating activities A 6420 6626 5817 Cash flow from investing activities B -2817 -596 -856 Cash flow from interest income C -26 -33 -41 Cash flow from interest expense D 149 142 145 Free cash flow for Debt and equity holders * 3726 6139 5065 * Free cash flow for debt and equity stakeholders is the cash available after meeting    all the capital expenditure needs which is available for servicing debt and equity.          For this we need to adjust the cash flow from investing activities and any other     cash inflow such as interest income. b. Free cash flow for equity stake holders Item 2015 2014 2013 Cash flow from operating activities A 6420 6626 5817 Cash flow from investing activities B -2817 -596 -856 Cash flow from financing activities C -3702 -6714 -5263 Cash flow for dividend paid D 2561 2216 1730 Cash flow from interest income C -26 -33 -41 Free cash flow for common equity holders ** 2436 1499 1387 ** Free cash flow for common equity stakeholders is the cash available, after meeting      all the capital expenditure and interest and debt service needs, for servicing equity stakeholders.     For this we need to adjust the cash flow from investing activities and financing activities       other than than dividend paid (since dividend is paid to common equity stakeholders)       from the cash flow operating activities. c. Reconciliation between a and b. Item 2015 2014 2013 Free cash flow for Debt and equity holders * 3726 6139 5065 Cash flow from financing activities -3702 -6714 -5263 Cash flow for payment of dividends 2561 2216 1730 Cash flow for interest payments -149 -142 -145 Free cash flow for common equity holders ** 2436 1499 1387