Value Added
Hi, I’m Rose Jacobs, here with you for Kalkine TV. Today we’re going to look at what is Value adding?
But first, make sure you press the bell icon for all the latest updates here on Kalkine TV.
Value-added means any addition in the form of either improvements or upgrades in any
product or service. The additions considered as value-added must all be made before the
product or service reaches the end-users. All such additions must enhance the value of the product or
service. The concept is beneficial while computing taxes that are charged on value-added.
Such taxes are called Value-added taxes. The concept of value addition can be applied to
products, services, firms, management, or even business areas. For example, providing better or
extra services in the form of after-sales services and better customer support or a retail seller
of computers can add value by including software or computer accessories with the
computer's essential product. In addition, strong branding can add value to a product
by using a company's logo to sell a product. What are the popular types of value added?
Gross Value Added (GVA) shows the contribution made to the economy by an individual sector,
region, industry, or entity. It measures the gross value added by a particular product,
service, or industry. It helps compute the Gross Domestic Product. It indirectly indicates the
state of the nation's entire economy. It is computed using the value-added Statement.
Economic Value Added (EVA) is the difference between the rate of return and its capital cost.
It is used to measure the value generated from the funds invested. A lot of financial modelling
is required to compute EVA. Market Value Added (MVA)- is defined as the difference between
the market value and total capital invested. It shows the capacity to increase shareholder value
over time. A high MVA indicates effective management, while a low MVA indicates
that management's actions and investments value less than investors' contributions.
Cash Value Added (CVA)- It is helpful to measure the amount of cash a firm generates
through its operations. CVA makes investors
understand the company's ability to generate cash between periods.
What are the ways to add value? Identifying Gaps- this helps in adding in something missing,
which is the base of value addition. Understanding customer's perspective – producers can make
correct value addition by understanding what customers expect from the product or service.
Getting customer satisfaction – To improve customer satisfaction and add value to goods
or services, getting the customer's feedback is essential. Surveys, polls,
and customer service professionals add value to service this way.
Understanding shortfalls and constant evolution – It is crucial to understand the shortfalls and
keep evolving to provide customers with the necessary satisfactory product or service.
Constant improvement helps in perfect value additions. Market Research – To
get a return for the value addition, it is essential to do intelligent market research.
Understanding the trends and adding value to the products
accordingly helps in generating more significant revenue. So Who gains from Value Addition?
There are four primary beneficiaries from value added by a firm: the workers, investors,
government, and the owners. It is the people who facilitate value addition. Workers- they are a
major claimant group of value-added. The payments to the workers are all results of value addition.
It may be in the form of wages, bonuses, employer contributions,
etc. Investors/ Providers of capital- Lenders like banks, financing institutions, the public
are all facilitators of funds needed for value addition. They get returns on their funds from
value-added services/ manufacturing undertaken. Government- The government creates a conducive
environment for value addition. The payment it gets in return is in taxes applied on such
value additions at each stage. Owners- At the end, owners or shareholders get the final claim
of the value-added. Returns are in the form of capital gains or profits distributed as dividends.
Why do we need to measure value added? Value-added shows the contribution of a team of employees,
managers, shareholders, etc. Value-added, if communicated in the form of returns, results in
employees working harder. Assigning value added to each process helps identify and eliminate
unnecessary activities. Value added is predictive of a process’s strength.
It can be used as a basis for wage and salary policies.
And that’s it for today. If you like what you’ve learned then don’t forget to like, share and
subscribe and go to kalkinemedia.com for all our latest. I’m Rose Jacobs, see you next time!