In October 2021, Mark Zuckerberg announced that Facebook would change its name to Meta.

Meta is an adjective that means an object is referring to itself. But at the same time, it also stands for something called the metaverse.

This announcement was met with curiosity, skepticism, and the obvious question: “What exactly is the metaverse?” It sounds like the metaverse is pretty much like virtual reality.

So how is the metaverse different from virtual reality, and do you need a Facebook-made VR headset to access it?

What is the difference between Metaverse and virtual reality (VR)?

If you’ve read through the articles about the metaverse, the similarities between it and virtual reality are hard to deny. However, there are some important differences.

Here are 6 key differences between virtual reality and metaverse.

1. Virtual reality is well defined, Metaverse is not

The most notable difference between virtual reality and the metaverse is that while VR is now well understood, the actual metaverse is still very vague.

According to Mark Zuckerberg, the metaverse is “an embodiment of the Internet, where instead of just viewing the content, you can stay in it”. A recent announcement from Microsoft described the metaverse as “a digital world where digital twins of people, places, and things exist”.

These descriptions are rather vague when compared to our understanding of virtual reality. It is also possible that even the technology companies themselves do not have a complete definition of the concept.

According to Facebook, the decision to rebrand is a necessary part of building the metaverse. The company wanted a name that better represented what the company was doing. But it’s certainly not the only good reason to do so. The image of Facebook is also not very good in the eyes of users.

It has also been suggested that the metaverse is nothing more than a buzzword to describe technological innovations in the existing Internet.

2. Facebook does not own either of these technologies

Another potential question about the metaverse is who can actually define it.

As the owner of the Oculus Rift, Facebook played an important role in the development of virtual reality. But at the same time, the firm is just one player in a huge industry.

The same is true of the metaverse. Facebook may have changed its name to Meta, but it’s not the only company entering the field. For example, Microsoft recently announced Microsoft Mesh, a version of its mixed reality platform with similarities to the metaverse and many different definitions. Furthermore, a recent statement from Facebook alludes to the fact that the company considers itself part of the metaverse. This means that, like VR, the metaverse will not be confined to a single company.

3. Metaverse includes a shared virtual world

Metaverse is a shared virtual space that users can access through the Internet. Again, this is what VR headsets have clearly allowed you to do. The virtual space in the metaverse sounds similar to the space that already exists in virtual reality shows.

Users are expected to be identified by personal avatars and interact with each other in virtual locations. In addition, they will be able to purchase or build virtual items and environments, such as NFTs.

The fundamental difference is that although virtual worlds are currently limited in size, the metaverse sounds like it will provide access to the entire Internet.

4. Metaverse will be accessible in virtual reality

Metaverse will not require you to wear a VR headset. But it is believed that much of this service will be accessible to headset users.

This means that the line between surfing the Internet and using virtual reality can be blurred. VR headsets can begin to be used for tasks normally performed with smartphones. If the metaverse becomes as widespread as Facebook hopes, VR is more or less likely to become a niche product.

5. Metaverse won’t be limited to VR

However, the metaverse will not be limited to virtual reality. Instead, it will be accessible by both an augmented reality device and whatever device you already use to connect to the Internet.

This opens the door to many different features that are not possible with virtual reality. For example, augmented reality will allow aspects of the metaverse to be projected into the real world.

Virtual spaces will also be designed so that they can be accessed anywhere without the need for a headset.

6. Metaverse has much greater potential than VR

Virtual reality is currently used for education, therapy and sports. But it is still said to be best suited as a form of entertainment.

The Metaverse, at least in scale, sounds like a new and improved version of the Internet. It is expected to change the way people work, access social media and even surf the web, meaning that while many people have completely abandoned virtual reality, the same is unlikely to happen with the metaverse. .

Will Metaverse replace the Internet?

Virtual reality hasn’t had quite the impact on the world as some expected. There is a limit to how long people want to wear headphones.

Metaverse won’t have this problem, accessible to both those with and without access to a VR headset. Some expect it to have a much larger impact.

At the same time, it is very difficult for the metaverse to completely replace the Internet. VR headsets offer an interesting alternative to computer monitors. Metaverse will provide an interesting alternative to the Internet. But neither is designed to act as a replacement for something else.

Business value is such a familiar terminology in the investment field. However, determining the exact value of a company is not an easy feat. This article will give a brief overview of business valuation methods.

Net asset value valuation method (the Asset Approach)

This is one among the traditional valuation methods that help to reflect the actual value of a business at a specific point in time.

Overview

• Definition

As the name suggests, this type of approach considers the business’s total net asset value, minus the value of its total liabilities, according to your balance sheet.

• Object to be applied: Small and Mid-sized Enterprises (SMEs)

Pros and cons

The net asset value valuation approach is typically used when valuators are faced with a company that has produced negative earnings or with companies with significant value in their fixed assets. Often, this approach is used to determine the lowest possible value that a company would be worth without considering the business’s ability to generate profits.

Pros

The noticeable pro of this method is that it’s very straightforward. The conclusion to value is merely Assets minus Liabilities. The assets and liabilities are available on the financial statements, so performing the calculation will be relatively quick and does not require complex skills and resources.

Cons 

• This approach does not take into account the arising of tax obligations related to the value of the business’s assets. Therefore, the accurate-to-be value will generally be lower than the value stated on the balance sheet.
• The most significant pitfall of the this method is that it doesn’t consider a business’s ability to generate profit from its products or services offered. As such, this method should only be used when the Asset and Income Approach yield a lower value than the book value or adjusted book value or a company with significant value attached to its tangible assets.

Discounted cash flow method (the Income Approach)

The discounted cash flow method is a fairly effective and widely used method. However, this method has a rather complicated approach, requiring a lot of specialized knowledge as well as input data.

Overview

• Definition

This is a business valuation method by making predictions about the future cash flows that the company can generate then discounting it to the present time. Given that the value of the business is equivalent to the total present value of the cash flows that the business can generate in the future. Here is the equation for finding the DCF:

DCF = CF1/(1+r)^1+  CF2/(1+r)^2+ …+ CFn/(1+r)^n

Let us break this down:

• DCF (discounted cash flow) is the sum of all the future discounted cash flows that the investment is expected to produce.
• CF (cash flow) is the overall cash flow for a given year. CF1 is for the first year and the CF2 is for the second year, and so on.
• r (discount rate) is the discount rate in the decimal form. Basically, it is the target rate of return that you want on the investment.

• Object to be applied: businesses with relatively good financial status, high debt-paying capacity, large capital and business ability to generate profits to cover all costs.

Pros and cons

Pros

This approach can assess both the present value and the expected future value of the company, especially for businesses with potential for future growth, startups or businesses that do not have many fixed assets such as technology companies.

Cons

• Quite difficult to access, which requires the valuator to acquire sound knowledge and experience in handling complex financial models.
• Require many input variables and subjective assumptions of the analyst. However, with a new project or an upcoming project, it is difficult to identify variables and make reasonable assumptions. This can lead to errors or results that are dictated by the biased aspiration of the valuator.
• The probability of error is relatively high. It can be seen that the final estimated value accounts for 70% of the model, but the calculation of the value is relatively sketchy. Moreover, future events always have many unpredictable risks.

Market value valuation method (the Market Approach)

This is an approach to determine the value of a business in terms of market realities based on the P/E ratio.

Overview

• Definition

The price-to-earnings ratio (P/E ratio) is the ratio for valuing a company that measures its current share price relative to its earnings per share. The essence of this method is to compare the company’s P/E ratio with its competitors in the market to find the most suitable correlation value for the business.

P/E = Stock Price Per Share/Earnings Per Share

or

P/E = Market Capitalization/Total Net Earnings

• When to apply?

When there is data on rival enterprises in the market listed on the stock exchange or UPCom for comparison.

Pros and cons

Pros

• Simple and accessible

Financial indicators of enterprises listed on the stock exchange or traded on UPCom are standardized. Therefore, it is relatively easy to get data and calculate.

• Based on market price

This is the valuation approach from a market perspective on the basis of comparison with direct competitors in their field, so the value of the business can reflect the actual market situation at the calculation timing.

Cons 

• Business value is accurately reflected only at the calculation timing

Since the comparison is based on actual market prices, valuators tend to overlook the growth potential as well as the potential risks of the business. As a result, this method may not fully reflect the true value of a business, especially those with potentially large future profits.

• Error due to inaccurate market price reflection

Market prices are determined by supply and demand. In some cases, due to psychological impact from investors, the market value may fluctuate very high or low compared to the actual value of the business. If prices are used at these times for valuation, the result may not be accurate.

• Limited to listed businesses

As described above, this approach uses data of rival businesses that have been listed as a basis for comparison and pricing. It will be difficult for startups or unlisted companies to apply.

Notes in the process of business valuation

Determining business value is the activity that requires a lot of knowledge, experience as well as vision. Here are some important notes when conducting a valuation:

• Choose an appropriate valuator

Accurate valuation requires an expert in numbers and possessing a sound understanding of the industry and the market in which the company operates. Therefore, there should be careful consideration and specific criteria to choose the right valuator.

• Properly and sufficiently assess the growth potential of the business

Traditional valuation methods often refer to current numbers like sales, profits, or EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization). However, a thorough valuation also needs the prediction of the picture of the business for at least the incoming 5 years to see the full potential of development as well as possible risks. Market is always moving, so the assessment should not just stop at a static state.

• Combine qualitative and quantitative methods

The terminology “valuation” makes most people think of quantitative methods with a lot of metrics to deal with. This is true but not enough.

Qualitative factors such as human and company culture may not be quantified by data, but significantly contribute to the development of the business. That is also the reason why investment funds, especially venture capital funds, consider humans as one among the key factors to consider investing.

The foregoing is a brief overview of common business valuation methods. In fact, determining the value of a company is rather complicated and requires time to learn and evaluate. Valuation is not simply calculating the numbers, it is an art that requires an investment of knowledge and effort!

In recent years, business valuation has been attracting the interest of many investors due to the warming of the stock market. However, not everyone fully understands the purpose or process of determining the value of a business. The following article of Vitex Capital is an overview of the definition, why and how of business valuations.

Overview of business valuation

What is Business Valuation?

Business valuation can be described as the process or result of determining the economic value of a company. Valuation is different from pricing. Valuation is intrinsic; it’s based on the actual performance of the business. Pricing results from supply and demand; it incorporates market influences such as overall direction of prices, other investors, and new information such as rumors and news.

Why You Would Need To Do a Business Valuation

• Take as a basis to build business strategies

Every year, businesses will determine their long-term, medium-term and short-term development strategies to address problems in different time frames. Business leaders certainly need to have a sound understanding about the value and position so that they can bring out the most appropriate strategies for development. This is the primary purpose of business valuation.

• Execute a sale or purchase of a business

To be able to reach the final decision about the sale, purchase, or merger of a business, calculating the accurate value of the business is fundamental to negotiations. Valuations are used to benchmark buy-ins and buy-outs for partners and shareholders. By determining the value, the seller will propose a number that is attractive enough to potential investors, but not too detrimental to themselves. The buyer also have to carefully consider the intrinsic value and potential of the company before coming to the official decision.

• Borrow capital or call for investment

In the case of not having enough capital, companies often resort to debt instruments or call for investments as financial leverage. However, in order to succeed in taking out a loan or calling for investment (especially official channels such as banks), proving the ability to repay the debt is a prerequisite. Lenders and investors need to give careful consideration to the real value and growth potential before arriving at the conclusion whether to lend or invest in the company.

• Valuate corporate shares

In the case the business owner wants to attract new and existing shareholders, or issue shares to the public, business valuation is of crucial importance. Through such activities, business owners as well as investors can determine the value of corporate shares, so that being able to reach the right decision related to buying and selling shares.

• Develop an exit strategy

Investors when pouring money into a business will often determine their exit strategy, or business owners will have plans to sell the company in the long term. Through valuations, investors or business owners will have a development strategy to quickly increase profits and value of the company to facilitate the exit plan.

• Resolve legal-related issues

Legal events like dispute, divorce, inheritance, etc. involved in the split or decentralization of the company will require business valuation. For these events, lawyers and relevant parties will conduct business valuation and handle in accordance with the law.

What Business Valuation Means to related sides

• For competent authorities

Valuation of businesses helps to provide the overview of the market situation, thereby devising appropriate strategies to support the management and development of the enterprise ecosystem.

• For Businesses

Determining the business value helps executives form a basis to consider and make strategic decisions to navigate their developmental pathway.

• For business-related partners

Business valuation helps partners such as suppliers, customers, shareholders, investors, etc. have sufficient ground to make business and investment agreements in the most effective way. 

Macro and micro factors that affect the value of any businesses

There is a myriad of factors that have a strong influence on how successful the business is. Therefore, in order to accurately calculate the business valuation, it appears necessary to identify factors that may have a considerable impact on the performance of a company, including internal and external factors as follows:

Intrinsic factors

• Asset status

Assets are tangible factors that support the production process and determine the quality of products and services of an enterprise. In addition, assets are also resources that businesses can sell for particular purposes. Therefore, this is regarded as a decisive aspect to show the capacity and potential of the business.

• Location

The meaning of “location” includes both area and topography of the business. These aforementioned factors will create favorable conditions for attracting customers and transporting goods. Besides, location also dramatically influences the operating costs of the business. The most optimal location will differ considerably in the business’s field. Accordingly, the determination of location will exercise such an enormous influence on the determination of business value.

• Reputation

Reputation or brand is an intangible element of tremendous value to businesses. Building a good image with customers and partners will significantly contribute to creating a huge potential revenue source. Today, a brand is something that can be transacted with great deal. For this reason, the business valuation process really needs to take this factor into consideration.

• Technical and technological competence

This factor can be said to be of paramount importance, especially for businesses that provide products and services requiring high level of technology. This capacity is shown through factors such as technical level of workers, modern equipment and machinery, intellectual property rights, etc. In the context of a competitive and rapidly changing market, possessing high-tech capabilities help businesses adapt quickly and compete effectively.

• Human capacity

A business being able to stably develop incredibly depends on human factors, especially the group of key executives. Possessing good human capabilities help businesses boost the potential value of the business.

Extrinsic factors

• Macro environment

Factors such as economy, politics, culture – society, science – technology may either create favorable conditions or hinder the process and development potential of businesses. In certain circumstances, the fluctuations of these macro factors can indirectly cause the business to go bankrupt.

• Specific environment

Specific environment refers to industry factors, which have a direct impact and which the enterprise can control to some extent. Specific factors include relationships with customers, suppliers, competitors, government departments & agencies, etc.

Business valuation method

Valuations are usually carried out by a team of experts and by a standard process. Here are the basic steps of a business valuation procedure:

Step 1: Outline a plan and prepare the necessary conditions

The more accurate the business valuation is, the more effective the subsequent decisions will be and vice versa. Hence, relevant parties need to prepare carefully for the valuation activity. To make an effective plan, businesses need to answer the following questions:

• What is the purpose of valuation?
• What are the criteria to be met when conducting a valuation?
• What information is needed for the valuation?

Step 2: Collect and synthesize information on financial statements

The value of any businesses is the present value of expected future profits. To identify these factors, business data in the past is such a valuable source of information.

In addition, appraisers need the balance sheet and income statement of the business for at least the last 5 years to make accurate analysis and predictions.

Furthermore, businesses also need to pay attention to past reporting adjustments (eg: revenue adjustments for tax avoidance/tax planning). The above said adjustments may help businesses reduce taxes in the past, but they cannot reflect the full performance of the business, so it will be detrimental to the valuation.

Step 3: Choose an appropriate business valuation method

There are many different ways to determine business value, and the choice of method will depend on the valuation criteria and capabilities of each company. Some of the common business valuation methods are as follows:

• Net asset value, or book value method
• Discounted cash flow method
• Market value method (using price-to-earnings ratio, known as P/E ratio)

Step 4: Make conclusions and evaluate the business

This is the most important step in the business valuation process. After measuring the value and coming to specific results, we will aggregate the results into a data table for comparison. It is inevitable that there will be a difference in value among methods, but the art of valuation is the understanding of the criteria and prioritizing to arrive at the final value.

Valuing a business is an activity that requires a lot of skills, experience as well as business thinking. We hope that this article will help readers gain useful information, as well as understand the method of determining business value.