Value added
Value addedis a term infinancial economicsfor calculating the difference betweenmarket valueof a product or service, and the sum value of its constituents. It is relatively expressed to thesupply-demandcurve for specific units of sale.[1]It represents amarket equilibriumview ofproduction economicsandfinancial analysis.Value added is distinguished from theaccountingtermadded valuewhich measures only the financial profits earned upon transformational processes for specific items of sale that are available on the market.
In business,total value addedis calculated by tabulating theunit value added(measured by summing unitprofit— the difference betweensale priceandproduction cost,unitdepreciationcost, and unitlabor cost) per each unit sold. Thus, total value added is equivalent torevenueminusintermediate consumption.[2][3]Value added is a higher portion of revenue forintegrated companies(e.g. manufacturing companies) and a lower portion of revenue for less integrated companies (e.g. retail companies); total value added is very nearly approximated bycompensation of employees,which represents a return to labor, plusearnings before taxes,representative of a return to capital.[3][4]
Definition
[edit]Inmicroeconomics,value added may be defined as the market value of aggregate output of a transformation process, minus the market value of aggregateinput(or aggregate inputs) of a transformation process. One may describe value added with the help ofUlbo de Sitter's design theory for production synergies. He divides transformation processes into two categories, parts and aspects. Parts can be compared to timeline stages, such as first preparing the dish, then washing it, then drying it. Aspects are equated with area specialization, for example that someone takes care of the part of the counter that consists of glass, another takes care of the part that consists of plates, a third takes care of cutlery.[4][5]An important part of understanding value added is therefore to examine delimitations.
Inmacroeconomics,the term refers to the contribution of the factors of production (i.e. capital and labor) to raise the value of the product and increase the income of those who own the said factors. Therefore, the national value added is shared between capital and labor.[3]
Outside of business and economics, value added refers to the economic enhancement that a company gives its products or services prior to offering them to the consumer, which justifies why companies are able to sell products for more than they cost the company to produce. Additionally, this enhancement also helps distinguish the company's products from those of its competitors.[6]
National accounts
[edit]The factors of production provide "services" which raise the unit price of a product (X) relative to the cost per unit ofintermediate goodsused up in the production of X.
Innational accounts,such as theUnited Nations System of National Accounts(UNSNA) or the United StatesNational Income and Product Accounts(NIPA),gross value addedis obtained by deducting intermediate consumption fromgross output.Thus gross value added is equal tonet output.Net value added is obtained by deductingconsumption of fixed capital(or depreciation charges) from gross value added. Net value added therefore equals grosswages,pre-tax profits net of depreciation, andindirect taxesless subsidies.
Value added tax
[edit]Value-added tax(VAT) is ataxon sales. It is assessed incrementally on a product or service at each stage of production and is intended to tax the value that is added by that production stage, as outlined above by unit value added.
See also
[edit]References
[edit]- ^"Value-Added Product: What It Means in Industry and Marketing".Investopedia.Retrieved14 April2023.
- ^"International Economics Glossary: V".www-personal.umich.edu.Retrieved2021-05-17.
- ^abc"What does value added mean?".definitions.net.Retrieved2021-05-17.
- ^ab"Value Added: Opportunities and Strategies"(PDF).Kansas State University.Retrieved14 April2023.
- ^Sitter, Sitter, L.U. de (1994).Synergetisch Produceren.van Gorcum.ISBN978-90-232-3365-7.
{{cite book}}:CS1 maint: multiple names: authors list (link) - ^Hayes, Adam (2020-08-28)."Why Value-Added Matters".Investopedia.Retrieved2021-05-17.
Further reading
[edit]- Alan DeardorffDeardorff's Glossary of International Economics(Click "V' for" Value added. ")
- Edgar Z. Palmer,The meaning and measurement of the national income, and of other social accounting aggregates.
- Paul A. SamuelsonandWilliam D. Nordhaus(2004)Economics."Glossary of Terms," Value added.
- Anwar Shaikh& Ahmet Ertugrul Tonak,Measuring the Wealth of Nations.CUP.
- M. Yanovsky,Anatomy of Social Accounting Systems.
