In today’s video, I am putting ChatGPT to the test. We will be examining how well this AI software performs when asked to value a company.
As someone with years of industry experience, I am curious to see how ChatGPT stacks up. Could it potentially replace me in my job?
But before we dive into the evaluation, let me introduce myself. I am Phil, a chartered accountant who has worked at KPMG and gained a wealth of experience in senior finance roles. I joined Fe in January 2022 after spending 13 years as a specialized trainer in accounting, financial analysis, and modeling at BPP Professional Education.
First, let’s understand what ChatGPT is. It was developed by OpenAI, a tech research company committed to ensuring that artificial intelligence benefits humanity. ChatGPT stands for Generative Pre-training Transformer, which refers to how the software processes language.
What sets ChatGPT apart from other chatbots is its training process. It was trained using reinforcement learning from human feedback (RL HF). This involved human AI trainers and reward models to develop ChatGPT into a bot capable of challenging assumptions, answering follow-up questions, and admitting mistakes.
Now, let’s ask ChatGPT a real question: How would you value a company?
The answer provided by ChatGPT is different from a regular search engine. Instead of generating a random list of links, ChatGPT provides a single coherent response that feels like a real person is talking to you. It is considered articulate, understandable, and technically correct.
However, there are some shortcomings to consider. Firstly, the answer is not comprehensive. It does not describe commonly used valuation methods like EV to EBITDA or EV to EBIT. Secondly, the answer does not consider the specific circumstances of the valuation. An expert would tailor their valuation method to the business being valued.
Let’s dive deeper and ask ChatGPT how to build a discounted cash flow (DCF) valuation using Excel. The response provided by ChatGPT gives the basics of a DCF valuation but lacks advice on creating a credible and robust valuation. It does not address the subtleties and nuances of producing a DCF valuation.
In conclusion, ChatGPT is an impressive program that can provide a quick overview of important information and key steps in a conversational language. It can serve as a signpost for further research. However, it may not be accurate or comprehensive, and it lacks application to specific circumstances. It cannot replace a human expert who can adapt to the ever-changing world of business valuation.
