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Value-Added Analysis

Prof. Dr. Dan Dumitru Popescu


Value-Added Analysis
Economic Value-Added Analysis measures the amount
of value a company has created for its shareholders

It determines how much profit a company has
produced after it has covered the cost of its capital

Economic Value-Added Analysis also deducts the cost
of equitywhat shareholders would have earned in
price appreciation and dividends by investing in a
portfolio of companies with similar risk profiles

Methodology
Economic Value-Added Analysis consists of three primary
analyses. A manager should:

Determine the net after-tax operating profit generated by a
business

Estimate the return required by investors. This calculation requires
two inputs. First, identify the dollars invested in the firm. Then
determine the cost of equity, or the return shareholders could
have expected in dividends and appreciation from investing in
stocks about as risky as the companys.

Determine the Economic Value-Added by subtracting the expected
return to shareholders from the profits created by the firm



VALUE ADDED
VALUE ADDED the surplus of value (wealth) created by
the company by efficiently using its resources, in excess
of the value of the production factors consumption.

The value-added can be determined by two methods:
The Synthetic Method
The Repartition Method (Addition)
1. The Synthetic Method
The Synthetic Method - out of the total volume of
production and commercialization activities we subtract
the intermediary consumption from third parties.

VA =(Q + Mc) C

Q production
Mc commercial margin
C intermediary consumption from third parties
Mc = Value of sold merchandises Cost of sold
merchandises
2. The Repartition Method (Addition)
The repartition method (addition) the value-added is
determined by adding the following elements:

wages and contributions to insurance and social
security fund
depreciation
provisions concerning the operating activity
interest
taxes (excluding the income tax)
the recalculated result (the result associated with the
turnover from which the interest is subtracted).
Factorial Analysis of the Value Added
The value-added can be analyzed based on the following models:

Qe
VA
' Mf
Qe
Mf
' Mf
E
Mf
E VA ) c
va Pa E
Qe
VA
E
Qe
E VA ) b
va Qe
Qe
M
1 Qe VA ) a
=
= =
= |
.
|

\
|
=
Factorial Analysis of the Value Added
The consequences of the Value Added changes over the
Economic and Financial results