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In microeconomics, value added may be defined as the market value of aggregate output of a transformation process, minus the market value of aggregate input (or aggregate inputs) of a transformation process. One may describe value added with the help of Ulbo de Sitter's design theory for production synergies. He divides transformation processes ...
In accounting, as part of financial statements analysis, economic value added is an estimate of a firm's economic profit, or the value created in excess of the required return of the company's shareholders. EVA is the net profit less the capital charge ($) for raising the firm's capital.
The concept of value added is central to national accounting. Value added in the secondary sector of the economy (manufacturing) is equal to the difference between the (wholesale) value of goods produced and the cost of raw materials supplied by the primary sector.
Marx's term is the German word "Mehrwert", which simply means value added (sales revenue minus the cost of materials used up), and is cognate to English "more worth". It is a major concept in Karl Marx's critique of political economy. Conventionally, value-added is equal to the sum of gross wage income and gross profit income.
An appropriate capitalization rate is applied to the excess return, resulting in the value of those intangible assets. That value is added to the value of the tangible assets and any non-operating assets, and the total is the value estimate for the business as a whole. See Clean surplus accounting, Residual income valuation.
This may be consistent from the point of view of the definition of value-added used, but will provide a misleading view of economic activity and gross profit income, if in fact the proportion of property income in the national income increases. At the same time, value-added includes the imputed rental value of owner-occupied housing.
Added Value can also be defined as the difference between a particular product's final selling price and the direct and indirect input used in making that particular product. Also it can be said to be the process of increasing the perceived value of the product in the eyes of the consumers (formally known as the value proposition).
If therefore we want to measure the total value-added by all institutional units, we need to devise a consistent procedure for grossing and netting the incomes and outlays of all units, within a system of transactors. Lacking such a system, we would end up double counting incomes and expenditures of interacting units, exaggerating the quantity ...