3MCompany is a science-based company that produces a wide range of products, including health care related products, office products, abrasives, adhesives, and highway safety products. The company has operations in more than60 countries and with a workforce of about 79,000 workers worldwide. Its products are said to be used in more than200 countries currently. By the end of 2010, the company had made global sales of about $26.7 billion (3M).
For the last four years (from 2007 to 2010), the company's Financial Statements shows that the organization's revenues have remained comparatively flat ($24.3Billions to $23.8 Billions). However, the firm grew its net income for the last two years(3M). The company also experienced a reduction in percentage of sales and other costs devoted to sales, administration, andother general costs from 31.85% to 30.55%. According to Reuters (2010), the company earned revenue of 23.9 billion United States dollars in the last fiscal year, which is an outstanding figure.
3M Liquidity Ratios
Current ratio refers to the ratio of total current assets to the total current liabilities (Michel andEdgard 162). It is a measure that explains whether or not the business has enough current assets to meet the payment plan of its current debts with a considerable margin to prevent losses in the current assets (Michel, and Edgard 13). By the end of 2010, 3M's current ratio was 2:20 (3M). A current ratio of more than 2:1 shows that the company has the ability torepay its short-term debt.
As at December, 31 2010, 3Mhad total current assets of $10.795 billion whereas its current liabilities stood at $4.897 billion (3M). This is calculatedby subtracting the company's current liabilities from the current assets. For a company to be considered to be performing well, the measure of this ratio must be a positive number. 3MCompany as per this indication can comfortably pay its liabilities with its current assets.
The inventory turnover of the company for the financial year 2010 stands at 4.65%. This is calculatedby dividing 12,100 million dollars of cost of goods sold by 2,610 million dollars of cost of inventories (3M). Compared to the industries' average of 4.44%, this percentage is higher. Not only is this inventory turnover level higher than the company's five-year average, but also higher than the conglomerate industry's five-yearaverage.
The firm's quick ratio (acid-test) is 1.67%. This is calculatedby subtracting 10,795 millions dollars of current assets from 2,609 millions dollars of inventories and dividing the value by current liabilities of $4,897 millions dollars (3M). An acid test ratio indicates whether a firm has enough short-term assets, excluding inventory, to cover its immediate liabilities. Generally, the quick ratio should be 1:1 or higher. At 1.67%, the company's liquid assets can manage its current obligations.
In conclusion, 3Mis able tomeet its short-term financial obligations because both its current assets and liabilities show a twofoldcurrent ratio, meaning that it have enough current assets to meet the payment plan of its current debts. The firm's quick ratio indicates that the business can comfortably manage its current debts and consequently meet its short-term debts using its liquid assets without overly depending on inventories. The company's inventory turnover is also impressive enough while the working capital indicates that the firm has enough assets as well as liquidity to cover the liabilities without attaching the inventory of the company.