Definition for : Value added

The value added by the company to goods and services purchased from third parties through its activities. On the By-nature income statement format, value added is equivalent to the sum of Gross trading profit and Profit on Raw materials used, less other goods and services purchased from third parties by-nature. For the by-function Income statement format, value added is equivalent to the sum of EBIT, Depreciation, Amortisation and Impairment losses on Fixed assets, personnel Expenses, and taxes other than corporate income tax. Value added is useful in understanding the sector and constitutes a measure of the integration of company in the sector.

(See Chapter 9 Margin analysis: Structure of the Vernimmen)

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