VALUE ADDED

Value Added

Value Added

Value Added

The added value is a concept used in economics, finance, and accounting with two ways:

From the accounting point of view it is the difference between the amount of sales and purchases. That is, the difference between market prices and production costs. At the corporate level - cost-benefit analysis - it is the difference between the income of a company and the costs of raw materials and capital (fixed and variable). This serves as the basis for the so-called value-added tax (Bock, Wolfe & Fisher, 1996).

In economic terms, value added is the value that is acquired by additional goods and services that are transformed during the production process. In other words, the economic value is the value that a process of production ads to the raw materials used in production (Andrejko, 2004).

An interesting definition of added value or value added is the enhancement of a product or service before it is offered to its customers. Crane (2002) posits that value added “refers directly to product and service features that increase the worth or benefit to customers” (p. 13). The author also highlights that “value is an estimate of future benefits” (Crane, 2000, p. 1). While the later definitions are focused from the perspective of the customer, in terms of a management function, value added would be the enhancement of the management function. This enhancement would be based on the addition of several other managerial actions since the principal management function would go above and beyond its main purpose or scope in an organization.

It has been suggested that the added value is the basis of profit, but it is possible to conceive or even find examples in which the value increases for no gain (sold at no profit) or vice versa (sold at a profit without creating value). Consequently it is important to consider when performing calculations or conceptual schemes do not mix and / or measurements and results.

The added value can be estimated for a company, a sector of the economy or a region or country, or even the international economy. The technique of Input-Output (MIP) determines the annual flow of goods and services obtained in terms of inputs or resources used from other production centers. From the standpoint of macroeconomic value added is the sum total of wages, salaries or fees, interest, rents, profits of the business and taxes collected by the State, in a given period (Allman, 2010).

Calculation of value added

The added value can be calculated in two ways, leading to the same result: the difference between the value of production and consumption value outside the company, and the sum of the compensation received by all actors involved in the production process. The participants, which can share the value added are:

Company employees: personnel costs.

Outside capital providers: payment for loans.

Owners of the company: payment of dividends.

Government, State, payment of taxes.

The company itself: one of the added value stays in the company, it is self-financing, which may be:

Calculation of value added from the financial statements

Value added: sales less cost ...