Accounting, financial statement analysis

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Accounting, financial statement analysis

Problem2-12

The following information is extracted from the annual report of Lands’ End (in millions, except per share data):

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 32.375 39.312 28.375 14.625 16.125 24.375

(end of fiscal year)

Common shares outstanding 30.1 31.0 32.4 33.7 34.8 35.9

*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

EPS Year9: -1.43 year8: 2.94 year7: -2.19 year6: -0.74 year5: 0.05 year4: 0.59

(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.

c. Choose another company and prepare similar graphs. Do your observations from Lands’ End generalize?

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Answer 1

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Answer #1

a.

		Yr 9	Yr 8	Yr 7	Yr 6	Yr 5	Yr 4
1.	Net income per share	1.04a	2.07	1.57	0.91	1.04	1.22
	Price per share	32.375	39.312	28.375	14.625	16.125	24.375

2.	Operating cash flow per share	2.47b	-0.86	3.76	1.23	0.99	0.62
	Price per share	32.375	39.312	28.375	14.625	16.125	24.375

3.	Net cash flow per share	0.00c	-2.79	2.34	0.35	-0.46	-0.03
	Price per share	32.375	39.312	28.375	14.625	16.125	24.375

4.	Free cash flow per share	0.91d	-2.41	3.19	0.82	0.07	0.14
	Price per share	32.375	39.312	28.375	14.625	16.125	24.375

a: (31.2/30.1)

b: (74.3/30.1)

c: (0.03/30.1)

d: (27.5/30.1)

b. The net income per share figure best explains the stock price. As you can see from your graph, the graph of these two values across time is almost parallel.

c. Solutions depends on the company and data collected.

answered by: AlertBinder

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