Calculating added value is an essential indicator for evaluating the economic performance of a company. This measure reflects the wealth created by production activity and plays a crucial role in financial analysis. Understanding the methods and formulas for calculating added value allows companies to better understand their economic contribution and optimize their management.
What is added value and what is it for?
There added value (VA) represents the new wealth generated by a company during its production process. It measures the specific economic contribution of the entity, excluding external contributions. This notion is fundamental to assessing the financial health and productivity of an organization.
The importance of added value manifests itself on several levels:
- Evaluation of economic performance
- Measurement of the capacity to create wealth
- Calculation basis for certain taxes (CVAE)
- Contribution to the calculation of national GDP
A high added value generally indicates good financial health, while a low VA can signal economic difficulties. Monitoring this indicator allows business leaders to adjust their strategies and optimize their value creation.
Methods for calculating added value
There are several approaches to calculating the added value of a company. The method chosen often depends on the data available and the sector of activity. Here are the main formulas used:
- Subtractive method : VA = Value of production – Intermediate consumption
- Additive method : VA = Turnover excluding tax – Intermediate consumption – Depreciation
- Combined method : VA = Commercial margin + Production for the year – Consumption for the year from third parties
There subtractive method is the most commonly used due to its simplicity. It consists of subtracting intermediate consumption (raw materials, external services) from the total value of production.
To illustrate these methods, here is a comparative table:
| Method | Benefits | Disadvantages |
|---|---|---|
| Subtractive | Simple and fast | May neglect certain aspects |
| Additive | More precise | Requires more data |
| Combined | Suitable for mixed activities | More complex calculation |
Elements to take into account when calculating added value
To obtain a precise added value, it is essential to integrate all relevant elements into the calculation. The main components to consider are:
- Staff costs
- Taxes (excluding VAT)
- Financial charges
- Allocations to depreciation and provisions
- Current result before taxes
These elements reflect the distribution of value created between the different stakeholders of the company: employees, State, lenders, shareholders and the company itself. A thorough analysis of this distribution can reveal opportunities for optimization or imbalances to correct.
It is essential to note that the calculation of the VA is generally done on a complete accounting year, i.e. a period of one year. This approach allows a global and coherent vision of the company’s performance over the long term.
Interpretation and use of added value
Beyond the simple calculation, the interpretation of the added value provides valuable insights on the economic health of the company. Here are some key aspects to consider:
The value added rate is a complementary indicator which is calculated by dividing the VA by the turnover excluding tax. This ratio makes it possible to compare the company’s performance to that of its competitors or to the sector average.
The added value also serves as a basis for calculating the Contribution on Business Value Added (CVAE). This tax applies to companies whose turnover exceeds 500,000 euros. Understanding the calculation of VA is therefore essential to anticipate and optimize the tax burden.
On a macroeconomic scale, the sum of the added values of all the companies in a country constitutes the basis of the Gross Domestic Product (GDP). Thus, the precise calculation of the VA by each company contributes to a more accurate measurement of national wealth.
Finally, mastering the calculation and interpretation of added value is a major asset for any company. This indicator offers a clear vision of wealth creation and helps guide strategic decisions towards sustainable and balanced growth. Managers and financial analysts must therefore pay particular attention to this crucial aspect of economic performance.