The Potential Application of Artificial Intelligence in Business Valuation
In the field of business valuation, artificial intelligence (“AI”) has the potential to be revolutionary. Although AI possesses promising abilities that can assist a valuation analyst with developing an analysis, its application raises concerns. There are several key considerations that a valuation analyst must carefully evaluate before relying on AI.
Providing Support and Rationale for the Estimation of a Company-Specific Risk Premium
The application of a company-specific risk premium (“CSRP”) when estimating the discount rate is controversial in the valuation industry. No generally accepted data source can be accessed to quantify the CSRP because the CSRP is specific to a subject company or asset. To estimate a relevant CSRP, the valuation analyst should perform a qualitative factor analysis and review quantifiable data sources that support the reasonableness of the CSRP.
Comparison of the Business Valuation Development Standards Among Organizations
Business valuation standards are promulgated by different authoritative bodies to create specific guidance for valuation analysts to improve quality and consistency. Each organization requires its members to adhere to its standards. However, navigating the different organizations and their standards can be difficult.
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