How to calculate value added
There is more than one way to calculate the added value, as the method used to calculate the added value depends on the type of added value and the formula that will be calculated by it. However, the general process for calculating the added value is the same for all formulas and is as follows:[١]
- Determine which format to use.
You need to prepare the information required to calculate the added value, then determine the formula that suits the information and collect data for the variables. For example, if you want to calculate the added value of your company, you will need to collect the total amount of invested capital and the market value including Copyright And debts to your company.
- Follow the formula
Using the chosen formula, the symbols are substituted. found in the formula with the numbers collected.
- Calculate the formula
After the special values have been entered into the formula, the mathematical procedures shown in the formula are performed, such as addition and subtraction, and the final value is extracted, which will be Company's added market value Or for the facility for which the added value will be calculated.
Below is Methods of calculating the added value for different fields:
Added value of a business
Value added is the total receipts of an establishment minus the costs of goods and services that other businesses purchase from it.[٢]
added value of industry
It is the gross output (which includes sales or receipts, operating income, commodity taxes, and inventory changes) minus its intermediate inputs (energy, raw materials, semi-finished goods, and services purchased from all sources).[٢]
added market value
Market Value Added (MVA) is defined as the difference between the market value of a business and the capital invested by both shareholders and debt holders, and is formulated as follows:[٣]
Market Value Added (MVA) = Market Value – Capital Investor
Its increase indicates the company's ability to increase shareholders' value over time, the added manufacturing value and operational capabilities, and the lower its value, the lower the value of the company's market procedures and investments, so that it becomes less than Capital The worker.[٣]
Cash value added
Cash value added (CVA) is a measure of the amount of cash a company generates through its operations. CVA gives investors an idea of the company's financial strength, and is formulated as follows:[٣]
Market Value Added = (Operating Cash Flow (OCF) – Operating Cash Flow Demand (OCFD))
Whereas:[٣]
- Operating Cash Flow (OCF): It is a measure of the amount of cash generated by normal business operations For the company
- Operating Cash Flow Request (OCFD): It is the amount of operating cash flow that a business needs in order to meet its strategic investment objectives.
Gross Value Added (GVA)
It is the value added by a specific product, service or industry, and helps in calculating the gross domestic product, which is a key indicator of the state of the country’s overall economy. It is formulated as follows:[٣]
Net value added = Value added statement (VAS) (total sales plus value added from other business activities) – depreciation (distributing the cost of the fixed asset over the period (productive life) after deducting its value as scrap).
Economic value added
Economic value added (EVA) can be defined as the incremental difference between a company's rate of return and its cost of capital. EVA is used to measure the value a company generates from the money invested in it, and is formulated as follows:[٣]
Economic Value Added (EVA) = Net Operating Profit After Tax (NOPAT) – Capital Employed (CE) × Weighted Average Cost of Capital (WACC)
Whereas:
- NIGHT: he The profit you make The company through its operations, after adjusting for taxes, but before adjusting for finance costs and non-cash costs.
- THIS: It is the amount of cash invested in a business.
- WACC: It is the minimum rate of return expected by the capital provider – the investors in the business.
the reviewer
- ↑ Indeed Editorial Team (9/3/2021), “How To Calculate Value Added (With Examples)”, Indeed, Retrieved 7/2/2022. Edited.
- ^ A for TROY (25/11/2021), “How To Calculate Value Added Microeconomics?”, ICTSD, Retrieved 7/2/2022. Edited.
- ^ A for T Th G H WRITERS (2020), “Value Added”, CFI, Retrieved 7/2/2022. Edited.
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