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How Has 3M Company’s Asset Composition Changed over Time?

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Asset base

In this part, we’ll be examining 3M Company’s (MMM) asset base by analyzing the change in the composition of 3M’s balance sheet over time. As you’d expect from a manufacturing company, 3M has a considerable amount of current assets and net fixed assets.

In 2015, 3M’s current assets made up 33.6% of its total assets at ~$11 billion, and its net fixed assets made up 26% of its total assets at $8.5 billion. However, 3M’s current assets fell from 39.4% of its total assets at $12.3 billion in 2014 to 33.6% at $11 billion in 2015.

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In the same period, the company’s goodwill rose from 22.6% of its total assets to 28.3%—or from $7 billion in 2014 to $9.2 billion in 2015. Current assets and goodwill didn’t show any appreciable changes in the 2010–2014 period. Net fixed assets rose gradually from $7.3 billion in 2010 to $8.5 billion in 2015.

Why did 3M’s goodwill increase in 2015?

Goodwill is an intangible asset that represents the difference between the purchase price and the market value of identifiable assets with finite lives in a business acquisition.

Increased goodwill implies that 3M completed major acquisitions in 2015, which was indeed the case. The company completed $4 billion worth of acquisitions in 2015.

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Analyzing inventories

As seen in the above figure, 3M’s finished goods inventory fell at a slower rate compared to its raw materials, work-in-progress inventory, and revenues.

Finished goods inventory’s growing at a faster rate than revenues and raw materials is often seen as a harbinger of weak demand.

Raw materials’ and work-in-progress inventory’s growing faster than revenues could be a sign of a pickup in demand. In 3M’s case, these have fallen faster than sales. Therefore, looking at the inventory breakup, we can tell that 2016 will likely be another weak year for 3M.

Key ETFs

Investors interested in trading in the industrials space can look into the Vanguard Industrials ETF (VIS) and the Industrial Select Sector SPDR ETF (XLI).

Major holdings in VIS include General Electric (GE) with a weight of 12.2%, 3M Company with a weight of 4.3%, and United Technologies (UTX) with a weight of 3.7%.

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