normal business activities.

 

Balance Sheet:

 

3M’s strong balance sheet and liquidity provide the Company with significant flexibility to take advantage of numerous opportunities going forward. The Company will continue to invest in its operations to drive growth, including continual review of acquisition opportunities.



Various assets and liabilities, including cash and short-term debt, can fluctuate significantly from month to month depending on short-term liquidity needs. Working capital (defined as current assets minus current liabilities) totaled $5.767 billion at December 31, 2014, compared with $5.235 billion at December 31, 2013, an increase of $532 million. Current asset balance changes decreased working capital by $968 million, driven by decreases in cash, cash equivalents and marketable securities, plus inventory decreases. Current liability balance changes increased working capital by $1.5 billion, largely due to decreases in short-term debt.

 

The Company uses various working capital measures that place emphasis and focus on certain working capital assets and liabilities. These measures are not defined under U.S. generally accepted accounting principles and may not be computed the same as similarly titled measures used by other companies. One of the primary working capital measures 3M uses is a combined index, which includes accounts receivable, inventories and accounts payable. This combined index (defined as quarterly net sales — fourth quarter at year-end — multiplied by four, divided by ending net accounts receivable plus inventories less accounts payable) was 5.0 at December 31, 2014 compared to 4.8 at December 31, 2013. Receivables decreased $15 million, or 0.4 percent, compared with December 31, 2013, with higher December 2014 sales compared to December 2013 sales contributing to this increase. Currency translation impacts decreased accounts receivable by $292 million. Inventories decreased $158 million, or 4.1 percent, compared with December 31, 2013. The inventory decrease was attributable to currency translation, which decreased inventories by $271 million, partially offset by an increase in demand. Accounts payable had a minimal change when compared with December 31, 2013.

 

Return on Invested Capital (non-GAAP measure):

 

The Company uses non-GAAP measures to focus on shareholder value creation. 3M uses return on invested capital (ROIC), defined as annualized after-tax operating income (including interest income) divided by average operating capital. Operating capital is defined as net assets (total assets less total liabilities) excluding debt. This measure is not recognized under U.S. GAAP and may not be comparable to similarly titled measures used by other companies. ROIC was 22.0 percent for 2014, and 20.0 percent for 2013.

 

Cash Flows:

 

Cash flows from operating, investing and financing activities are provided in the tables that follow. Individual amounts in the Consolidated Statement of Cash Flows exclude the effects of acquisitions, divestitures and exchange rate impacts on cash and cash equivalents, which are presented separately in the cash flows. Thus, the amounts presented in the