What is value added?
It corresponds to the value that a product takes, between the purchase of its components and its sale.
By buying raw materials and offering a new product from there, a company adds value to the product and creates wealth. And Helocks helps you manage your billing and accounting, and keep an eye on the wealth you create!
It is rare for a company to produce or create all the components of the product it develops and sells. The addition of other raw materials, the use of equipment, the intervention of personnel and know-how create added value.
Added value, in three words (no more)
Value added (VA) is the increase in the value that a company brings to a good between the time when it buys raw materials from its suppliers and the sale of the finished product to its own customers.
The added value is therefore the difference between the turnover of the product and the costs incurred in its manufacture or implementation.
In the case of the resale of an already finished product by a company that does not modify it, there is more talk of commercial margin, which generally corresponds to the costs incurred by its transportation and retail sale.
And it is for this reason that clothing purchased in the factory store for example, are much cheaper than in a conventional store.
How to calculate the added value?
This notion helps to determine the company’s ability to create wealth by transforming a product. The calculation of value added is relatively simple. Imagine a cook who prepares a beef bourguignon way grandmother:
- the cost of all the ingredients needed for the recipe (beef, carrots, onions, red wine, butter, etc.) costs € 5,
- the cook brings his know-how in the processing of ingredients,
- the restaurant sells the portion of beef bourguignon 15 €.
By passing in the hands of the cook, the value of the product went from 5 € (value of the ingredients) to 15 € (value of the recipe ready to sell). The added value of the product is therefore 10 €, because:
VA = final value of the product – value of goods used at creation (intermediate consumption)
In other words, the final value of the finished product is greater than the sum of the components used. And it is this difference that corresponds to the value added, or “balance of the production account”.
What is the added value for?
The value added by the company to the goods it sells makes it possible:
- pay the salary of the employees,
- settle the various taxes,
- repay loans from banks,
- pay dividends to shareholders, etc.
The residual value added can then be reinvested in the company to allow it to develop, to grow.
The added value of non-market services
The total amount of value added produced by a country is its Gross Domestic Product (GDP) and a very useful indicator for adjusting VAT rates, which are based on the country’s capacity to produce value added, wealth.
It is therefore difficult to calculate the value added of non-market services, since no turnover exists.
If bank are public enterprises that depend on the private sector and have a turnover, most public services are non-commercial.
The Social Security , the Employment Center , the various levels of the public administration do not create turnover, since their services are “free”. They are actually paid by the taxpayer through taxes, and their value is considered to be strictly equal to the costs they incur.
The added value of Helocks
Thanks to Helocks, our billing software, you can manage your accounting with ease: with access to your income statement, you can see in a few clicks the added value you give to your products, and thus gauge the financial health of your company.