Value Addition

Value added is commonly used as a measure of output. It represents the wealth created through an organisation’s production process or provision of services. Value added measures the difference between sales and the cost of materials and services incurred to generate the sales. The resulting wealth is generated by the combined efforts of those who work in the organization (employees) and those who provide the capital (employers and investors). Value added is thus distributed as wages to employees, depreciation for reinvestment in machinery and equipment, interest to lenders of money, dividends to investors and profits to the organization.

The enhancement a company gives its product or service before offering the product to customers. Value added is used to describe instances where a firm takes a product that may be considered a homogeneous product, with few differences (if any) from that of a competitor, and provides potential customers with a feature or add-on that gives it a greater sense of value.