Value addition is an economic indicator of a company’s wealth creation. Find out its simple definition and its different calculation methods.
Definition of added value
The Added value The added value of a product or service from a third party created by the operation (work) of an enterprise. It is therefore an economic indicator of a company’s wealth creation. It is specifically used as a basis for calculation VAT and a measure of a country’s GDP (Gross Domestic Product).
To simplify the concept of value addition, its formula can be summarized as follows:
VA (value added) = value of output – intermediate costs
In this example, the price at which the finished product is sold must be deducted from the purchase price from a third party to manufacture it. are intermediate costs raw materials (materials, components), but also energy-related costs (electricity, gas), rent, security… as long as they are external to the company.
What is the added value of a company?
The added value of a company is the added value it creates on goods or services from third parties (suppliers, service providers, etc.). financial year.
From an accounting point of view, there are two possibilities for calculating the added value of a company.
Calculating value added from business margin
Value Added (VA) = Business margin + Production for the year – Purchase of supplies +/- Change in stocks of supplies – Incidental costs of purchase of goods + Discounts, rebates and refunds on purchase of goods – Other external charges
Calculation of value added from results
Value Added (VA) = Net profit + Exceptional Charges – Exceptional Income + Finance Charges – Finance Income + Other Charges – Other Income + Staff Expenses + Taxes, Duties and Similar Payments + Provisions Depreciation And Rules – Depreciation and Provisions + Income Tax
What is the difference between profit and added value?
If added value is the additional value brought to a good or service as a result of a company’s activity, profit is the profit of the company. More specifically, she is left with the wealth she earned after paying her various expenses and making her arrangements.
Value added in English
Added value. Every firm that transforms a product creates additional value. Every firm that transforms a product creates additional value
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