3M: Challenges and Opportunities in Cash Management Harvard Case Solution & Analysis

3M: Challenges and Opportunities in Cash Management Cash Solution

Problem Statement

The company has five operating business segments: Industrial; Safety and Graphics; Electronics and Energy; Health Care; and Consumer. Due to wide range of infrastructure and product line the company faces many issue regarding the cost and finance side that describe below
i. Company’s credit rating is very poor due to increase in debt to capital ratio by 9% from previous year
ii. Unfunded pension and post-retirement benefit obligations could reduce cash flow.

iv. Environmental law compliance could adversely impact the operating costs and margins.

Involvement in lawsuits could adversely affect the business performance

3M and some of its subsidiaries are involved in numerous claims and lawsuits, principally in the US, and regulatory proceedings worldwide. The majorities of the lawsuits currently pending against the company alleges use of some of 3M’s mask and respirator products and seek damages from the company and other defendants for alleged personal injury from workplace exposures to asbestos, silica, coal mine dust. As of FY2014, the company had accruals for respirator mask/asbestos liabilities of $140 million.
Intense competition could decrease product demand, market share and margins
The company faces intense competition from various large-scale companies in its existing businesses. Some of its competitors have greater financial and other resources than the company. It faces direct competition from Balchem, Bayer, General Electric, Danaher, Honeywell, ITT, Textron, CONMED, H.B. Fuller, Johnson and Johnson, and Cardinal Health, among others.
Growing global automotive manufacturing market could drive the demand for products
The global automotive manufacturing industry has produced relatively consistent levels of growth over the past few years. The industry is expected to continue to grow positively till 2018 and to reach a value of approximately $2,151.8 billion.
3M's manufacturing operations are affected by national, state and local environmental laws around the world. These regulations are related to air emissions, wastewater discharges, toxic substances, handling and disposal of solid and hazardous wastes enforced by national, state, and local authorities around the world, and private parties in the US and abroad.
Foreign currency exchange rate fluctuations may affect sales and earnings
3M operates in various locations, including the US, Europe, Middle East, and Africa (EMEA), and Asia Pacific. The company’s financial statements are denominated in US dollars and approximately two-thirds of the company’s revenues are derived from outside the US. Therefore, the company is subject to foreign currency risks due to fluctuations in exchange rates.

Recommendation

Strong research and development capability helps to decrease the debt to capital ratio

3M has strong research and development (R&D) capabilities. The company's R&D expenditure stood at $1,770 million, $1,715 million and $1,634 million in FY2014, FY2013 and FY2012, respectively. In April 2015, 3M introduced new physician workflow technology that transforms the documentation process for physicians.
In FY2014, the industrial segment accounted for 33.8% of the total revenues, followed by safety and graphics (17.7%), electronics and energy (17.3%), health care (17.2%), and consumer (14%).

Increasing the cash flow by expanding the product line

3M has significant unfunded pension obligations. The company's pension and post-retirement benefit obligations stood at $23,431 million as compared to planned assets of $20,600 million, resulting into an unfunded status of $2,831 million. Thus, unfunded pension benefit obligation could force the company to make additional cash contributions toward bridging the gap between pension obligations, which, in turn would reduce the cash flow available for growth initiatives.
Business acquisitions could help strengthen existing businesses
3M has concluded a number of strategic acquisitions in the recent past to enhance its business profile and geographic footprint. For instance, during March 2015, 3M completed the acquisition of Ivera Medical, a manufacturer of health care products that disinfect and protect devices used for access into a patient's bloodstream........................

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