Question

	CERN	MDRX	MCK
Company assumed value	0	1960	23685
Equity assumed value	0	1624	21268
Net operating assets	1484	1620	9487
Book value of equity	2834	1284	7070
Net nonoperating obligations	-1350	336	2417
Common shares outstanding	172.1 shares	172.4 shares	197.0 shares
A) Compute the PB ratio for both Allscripts Healthcare and McKesson
B) Use Allscripts Healthcare and McKesson as comparables, along with the PB ratios from part a. and then estimate for Cerner its equity intrinsic value and its equity intrinsic value per share.

Answer 1

Answer to Part A-

PB Ratio stands for price to book ratio and formula to claculate this ratio is-

Sr. No.	Particulars	MDRX	MCK
1	Equity Assumed value/ Market value (A)	1624	21268
2	Shares outstanding (B)	172.4	197
3	Market value per share (A/B )	9.42	107.96
4	Book value (C )	1284	7070
5	Book value per share (C/B)	7.45	35.89
6	PB Ratio ((A/B)/(C/B))	1.26	3.01

Answer to Part B-

Net non operating obligations-

Sr. No.	Particulars	Calculation of intrinsic value by using MDRX PB Ratio	Calculation of intrinsic value by using MCK PB Ratio
1	PB Ratio	1.26	3.01
2	Book Value	2834	2834
3	Shares outstanding	172.1	172.1
4	Book value per share	16.47	16.47
5	Market Value	20.83	49.54
6	Equity Assumed value	3,584	8,525
7	Net non operating obligations	-1,350	-1,350
8	Company assumed value/ Invested capital	2,234	7,175