PROBLEM 2-12 Relations between Income, Cash Flow, and Stock Price The following information is extracted from the annual report of Lands' End (in millions, except per share data): Lands' End Fiscal year Year 9 Year 8 Year 7 Year 6 Year 5 Year 4 Net income $31.2 $64.2 $ 51.0 $30.6 $36.1 $43.7 Cash from (used by) operations 74.3 (26.9) 121.8 41.4 34.5 22.4 Net cash flow 0.03 (86.5) 75.7 11.8 (16.1) (1.2) Free cash flow* 27.5 (74.6) 103.3 27.5 2.4 5.1 Market price per share (end of fiscal year) 32.375 39.312 28.375 14.625 16.125 24.375 Common shares outstanding 30.1 31.0 32.4 33.7 34.8 35.9 CHECK EPS performs best *Defined as Cash flow from operations - Capital expenditures - Dividends. Required: a. Calculate and graph the following separate relations: (1) Net income per share (EPS) and market price per share (2) Cash from operations per share and market price per share (3) Net cash flow per share and market price per share (4) Free cash flow per share and market price per share b. Which of the measures extracted from the annual report appear to best explain changes in stock price? Discuss the implications of this for stock valuation.