By Ng Boon Hui, Kerk Su Ngee and Olin Chin
Valuation has always been central to making informed business, financial and transaction decisions, requiring a careful analysis of financial data, market conditions and industry trends.
For many years, business valuers relied on manual methods, including extraction of financial statements, manual calculation of volume-weighted average price (VWAP) and price multiples, to name a few. However, as technology advanced, data and analytics platforms such as Bloomberg and Capital IQ, transformed these processes, enhancing efficiency and precision.
Today, business valuation stands at the brink of yet another evolution with the emergence of Artificial Intelligence (AI), Augmented Reality (AR) and the metaverse. These technologies are no longer just concepts as they are beginning to reshape the way we perform valuation, offering new ways to analyse, visualise and model complex information.
While their application in valuation practices is still unfolding, the early signs of their transformative impact are becoming increasingly clear – particularly with their ability to continuously learn and improve over time.
AI: Transforming data into insights
Among these technologies, AI stands out as one of the most advanced, offering valuable support in enhancing the speed, precision and depth of valuation analysis. However, it is important to recognise that AI tools remain in development, with new use cases emerging as the technology improves.
AI’s ability to process large volumes of data offers significant benefits to valuers, especially given the growing complexity of modern business operations. From financial statements and customer behaviour metrics to macroeconomic indicators and industry trends, AI can help identify patterns and relationships that may not be easily visible through manual analysis. This can assist valuers in recognising risks that might affect future performance, refining cash flow forecasts and simulating how businesses might respond under various market conditions.
Beyond data analytics, AI’s machine learning capabilities also allow it to interpret qualitative information and translate it into quantitative insights. For example, if management believes an interest rate cut will create a more favourable business environment, AI is capable of analysing this qualitative input, estimating its impact on financial metrics and adjusting cash flow models accordingly.
AI also offers potential for monitoring ongoing market changes and updating financial forecasts in real time. This is especially valuable during time sensitive situations, such as mergers and acquisitions, where up-to-date valuations are crucial for negotiation and decision-making. In addition, AI can enhance scenario analysis by allowing valuers to explore multiple potential outcomes including impact to cash flow and profitability based on changing market conditions, regulatory shifts or competitive dynamics1.
Interestingly, studies suggest that AI has the potential to forecast financial performance more accurately than human analysts in certain contexts. For example, research from the University of Chicago found that AI models achieved higher accuracy in predicting earnings changes compared to humans2.
One promising aspect of AI is its ability to learn and adapt over time. As machine learning models process more data, they gradually refine their predictions and improve trend identification. This evolution could help valuations become more responsive, offering timely insights as new information emerges.
Embracing AI’s potential with caution
Although AI’s potential in business valuation is still unfolding, early applications suggest it can enhance efficiency, precision and insight when used appropriately. Business valuers who integrate AI thoughtfully into their practices – while maintaining their professional judgment – will be well-positioned to navigate the evolving landscape.
Ultimately, AI should not be viewed as a standalone solution but as a tool that complements and enhances human expertise. With ongoing advancements in machine learning and automation, AI holds the promise of making valuations more adaptive and forward-looking. However, its effectiveness will depend on how well valuers strike the balance between technological innovation and human insight in the years to come.
AR: Enhancing real-time insights in business valuation
While AI can help to analyse vast datasets and generate projections, AR is emerging as a transformative tool for how valuers engage with real-time information. AR enhances the real world by overlaying valuable insights directly into the user’s field of vision through devices like smart glasses, offering a seamless blend of real-time data access and in-the-moment validation3. This capability can create a practical and interactive edge in the valuation process.
Imagine a valuer wearing AR-equipped spectacles during a client meeting, where key financial metrics, industry benchmarks, or relevant data points appear unobtrusively in real time. For example, as management discusses the potential impact of a new product line, AR could display projected revenue growth scenarios or supply chain considerations, allowing the valuer to validate assumptions and ask more targeted questions. This ability to integrate and interact with live data enriches the valuation process by ensuring accuracy and fostering deeper engagement.
AR also holds potential for improving collaboration. In a live meeting with stakeholders, AR devices could project 3D models of financial scenarios onto a shared workspace, enabling all participants to interact with the data simultaneously. Adjusting assumptions, exploring alternative strategies, or highlighting key areas of focus becomes a dynamic and collaborative experience, bridging the gap between data analysis and decision-making.
As AR technology becomes more sophisticated and accessible, it has the potential to revolutionise business valuation. By adopting AR early, valuers can stay ahead of industry trends, leveraging its unique strengths to complement existing methodologies and provide clients with a more interactive, informed and impactful valuation experience.
Metaverse: Expanding the boundaries of valuation
The metaverse, often described as the next frontier of the internet, is a digital space where users can interact, transact and conduct business in immersive virtual environments. As companies begin to explore opportunities within the metaverse, valuers are starting to grapple with how to assess digital assets and virtual businesses that operate in this new space.
In the metaverse, businesses can sell digital goods, offer virtual services or even create virtual experiences, generating revenue in ways that don’t fit traditional business models4. The challenge for valuers is determining how to assess the value of these virtual entities. For instance, how do you value a company that operates entirely within a virtual world? What metrics should be used to assess the worth of virtual goods or services? These are the kinds of questions that valuers are beginning to explore as the metaverse grows.
One exciting area of potential is the creation of virtual business models within the metaverse. Companies may establish virtual storefronts, provide digital services or offer unique experiences within these digital environments, and each of these ventures may require a new set of valuation methodologies. While the market for virtual assets is still maturing, early experiments show promise. Digital goods, virtual land and Non-Fungible Tokens (NFTs) are already being bought and sold, creating an entirely new economy that valuers will need to navigate.
Another potential is for metaverse transactions to serve as benchmarks for valuations in the real world, particularly for Intellectual Property (IP) assets such as brands. Since transactions in the metaverse often do not involve the physical transfer of assets, they can provide a higher volume of transactional data for valuers to analyze. For example, the licensing or sale of virtual brand extensions in the metaverse could offer insights into how a brand is perceived, its global reach, and its monetisation potential – all of which could influence real-world valuations of the same IP assets. This increased access to transaction benchmarks could enhance the precision and relevance of valuation methodologies.
While the metaverse is far from being fully realised, its emergence signals a shift in how businesses may operate and how value is created. Valuers will need to stay ahead of these developments, understanding both the opportunities and the challenges posed by this new digital landscape.
Challenges and ethical considerations: Preparing for a new era
With the exciting potential of AI, AR and the metaverse come challenges and ethical considerations. AI, for example, must be designed and implemented carefully to avoid bias and ensure that it accurately reflects the realities of the businesses it evaluates.
AR, while interactive and engaging, must ensure that the data it overlays remains reliable and unbiased, preventing any misinterpretation or over-reliance on visualisations. The metaverse, as a rapidly developing digital economy, brings with it questions of ownership, intellectual property and the valuation of intangible assets.
As these technologies become more prominent in business valuation, it is essential that we address these challenges head on. Ethical frameworks, new standards and industry regulations will need to evolve in parallel to ensure that these technologies are used responsibly and effectively.
We are just beginning to unlock the potential of these tools, and as they continue to evolve, they will undoubtedly shape the future of business valuation in profound ways. The journey is only beginning, but the road ahead is filled with opportunities for those willing to explore it.
1 “AI Can Power Scenario Planning for Real-Time Strategic Insights,” The Wall Street Journal, 8 June 2021
2 Simon Moore, “Researchers Find AI Model Outperforms Human Stock Forecasters,” Forbes, 28 May 2024
3 Tom Metcalfe, “4 surprising ways augmented reality will revolutionize your life,” NBC News, 19 December 2017
4 Andrew Lowe, Magnus Jones, “What will the metaverse mean for business models?”, EY Norway, 12 January 2024
Note: The views reflected in this article are the views of the authors and do not necessarily reflect the views of the global EY organisation or its member firms.
Ng Boon Hui is a Partner with Strategy and Transactions, Ernst & Young PLT and the Chairman of the Valuation Committee of the Malaysian Institute of Accountants. Kerk Su Ngee is a Partner with Strategy and Transactions, Ernst & Young PLT. Olin Chin is a Director with Strategy and Transactions, Ernst & Young PLT.
