Value Added Statements

Value Added Statement is a financial statement that depicts wealth created by an organization and how is that wealth distributed among various stakeholders. The various stakeholders comprise of the employees, shareholders, government, creditors and the wealth that is retained in the business.

As per the concept of Enterprise Theory, profit is calculated for various stakeholders by an organization. Value Added is this profit generated by the collective efforts of management, employees, capital and the utilization of its capacity that is distributed amongst its various stakeholders.

Consider a manufacturing firm. A typical firm would buy raw materials from the market. Process the raw materials and assemble them to produce the finished goods. The finished goods are then sold in the market. The additional work that the firm does to the raw materials in order for it to be sold in the market is the value added by that firm. Value added can also be defined as the difference between the value that the customers are willing to pay for the finished goods and the cost of materials.

Example of Value Added Statement

Following is the format of the statement of Value Added explained with an example.

Sales Revenue 1000
Less: Cost of bought in goods and services 200
Value Added 800
Application of Value Added
Employee Benefits 250
To capital providers (Creditors and Lenders) 100
Taxes 100
Value retained (depreciation and expansion of business) 350
Value Added 800

From the above illustration, the difference between sales and cost of bought-in materials and services gives the value added by the organization. The second part the statement gives the distribution of the value added by the organization. Off the $800 added by the firm, $250 is utilized for employee benefits. $100 is given as interest of loans and dividends to shareholders. Another $100 is contributed to the government in the form of taxes. Whereas, $350 is retained for expansion of the current business and part of it is kept aside for depreciation amount. Thus, value added statement not only gives the value added by the organization but also the distribution of it across various stakeholders.

Advantages of a Value Added Statement

  • It is easy to calculate.
  • Helps a company to apportion the value to various stakeholders. The company can use this to analyze what proportion of value added is allocated to which stakeholder.
  • Useful for doing a direct comparison with your competitors.
  • Useful for internal comparison purposes and to devise employee incentive schemes.

Difference between Value Added and Profit

Profit subtracts all the cost incurred in the process of generating revenues. The value added, on the other hand only subtracts the cost of bought-in goods and services. Profits are meant for shareholders whereas value added is meant for stakeholders who include shareholders also. Therefore, value added is a wider term.

Last updated on : May 9th, 2018
What’s your view on this? Share it in comments below.


  1. Dominic
  2. Sahil

Leave a Reply

How is DSCR Calculated?
  • How to analyze and improve Current Ratio
    How to analyze and improve Current Ratio?
  • How to Analyze and Improve Debtors Turnover Ratio / Collection Period?
    How to Analyze and Improve Debtors Turnover …
  • Advantages and Disadvantages of Current Ratio
    Advantages and Disadvantages of Current Ratio
  • Asset Turnover Ratio
    Asset Turnover Ratio (ATR)
  • Subscribe to Blog via Email

    Enter your email address to subscribe to this blog and receive notifications of new posts by email.

    Recent Posts

    Find us on Facebook

    Related pages

    debts to assets ratio formulafixed asset turnover ratio calculatormeaning of hypothecation in hindidcf valuation formulahow to calculate external funds neededhow to calculate break even price per unitvalue of perpetual bondbanking advantages and disadvantagesdebt to value ratio calculatoraccelerated depreciation methodcalculating economic value addedmethod of evaluating capital investment proposalsadvantages and disadvantages of budgetslading definetangible assets and intangible assets examplesdebt management ratio formulacomputing yield to maturitydiscounted pay backfictitious assetsdefine debt covenantrestrictive covenants meaningtypical loan covenantsconstant growth dividendmerger horizontalhow to record a capital lease journal entrydividend payout ratio formulalength of operating cycle formuladistinguish between capital structure and financial structureadvantages and disadvantages of budgetary controlhow to calculate cash coverage ratioirredeemably definitionowners investment advantages and disadvantageslong lived asset impairmentmarket value of debenturescredit sales vs accounts receivabledefine capital budgetingsundries accounting definitionroe equationquick ratio formula exampledebenture payablehow to calculate gp marginnet profit turnover ratio formulacapital budgeting capital structure and working capitalimportance of profitability ratioaccounting for capitalized interestcalculating hurdle ratedef of conservativesources of redemption of debenturesbond and debenturescapital budget evaluation techniquesformula for stock turnover ratiosales to plant assets ratiotwo stage dividend discount modelreceivables turnover ratio examplecalculating the breakeven pointzero budgeting definitionaccounts receivable turnover in daysstandby letter of credit indiasimple irr formulatotal asset turnover ratio definitionwhat is arbitrage pricing theorybudgeting wikipediadirect and indirect expenseleveraged lease meaningdirectpay indiadefinition of retained profitsaccelerated methods of depreciationbeneficiary definition in bankingdebenturdebtor ratioequity ratio investopediabill of lading in international tradeagency debenturedebenture loans definitiondiscounted method of capital budgetingmeaning of hedging in financeirr calculation example