Added-value

Case of the companies

When a company sells a product or provides a service, it is not the creative one of all that composes the product or the service. Generally, it bought raw materials, semi-finished products (intermediate), it uses energy and services produced by others. It carries out a production starting from all these elements by using work and it is by this work that it creates value (value which is added to the values of the goods and services that it bought and that it transforms). The difference between the selling price of its product and the full value of the expenditure which it engaged to get the goods and services that it transforms, represents the added-value.

The procurement costs of the goods and services which it uses constitute of the Intermediate consumptions since they are goods and services which will be destroyed (transformed) thus consumed and because they take part in the production of a good or a final service (they are thus intermediate )

The detail of the calculation of the added-value of the company is available in the article: intermediate Balances of management.

The sum of the added-values of the companies of a country, to which one adds the balance of his external balance, constitutes its GDP.

Case of the noncommercial services

If the concept above does not pose a problem for the Biens and commercial services because the value of the goods and produced services is measured by the turnover, it goes from there differently for the noncommercial Services.

Indeed for these services produced by, inter alia, the Public administrations it does not have there a sale thus not Turnover. One does not know which is the produced value.

To solve this problem assumptions thus should be made. Concerning for example the services rendered free by the administration (it is an apparent exemption from payment, because they are paid by taxes and social security deduction) one considers that they “are worth at least what they cost”. If this postulate is admitted, one would underestimate the creation of value of the administrations by not including the additional margin which would have required a commercial company, or on the contrary one would over-estimate it by considering that this company should adjust its costs and its prices according to the competition and of the solvency of the request.

The total production costs of these services include the intermediate consumer expenditure and the expenditure of work and use of the equipment (depreciation). Consequently, one can rewrite the preceding expression in the following way:

An example of creation of value:

At the 19th century, the fattening of calves intended for butchery was done in a field, directly with the udders of the cow, with a limited human presence.

At the end of the 20th century, the stockbreeder sells, on the one hand the small calf at a slaughter-house which will make it fatten by a specialized independent workshop, and on the other hand milk - extract by a mechanical milking machine - with a co-operative which will make powder of it.

This powder will be sold with the workshop of fattening which will add water and drugs before giving the recombined milk to calf through an automated delivery system.

The result is almost the same one, but the value created and exchanged within the current system is more important.

See too

Cotisaton added-value (CVA)
Division of the added-value
Tax on the added-value (VAT)

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