Describe the Methods Used to Calculate Value Added. How Does Value Added Contribute Towards Understanding the Connections Between the Business and Its Product Markets? Use Relevant Examples to Illustrate Points.

1403 words 6 pages
Essay n°=1: Describe the methods used to calculate value added. How does value added contribute towards understanding the connections between the business and its product markets? Use relevant examples to illustrate points.

Within the framework of value added in general, Pigou and Bernard Cox suggested the calculation of Value Added that is used for classical nationals accounts. In 1920, Pigou gave his interpretation of value added, consisting of being able to precisely determine the earnings of a company; whereas the sales turnover isn’t precise since the expenses aren’t take into account. In this fact, he presents value added as the subtraction of the output related to the inputs. Thus, outputs that aren’t generated by our self
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Finally, an organisation obtains information, such as class management practice, through benchmarking. It is a technique allowing comparisons of companies of a same industry/sector to be made. The value added framework is one of the benchmarking techniques. Using such an analysis can identify different strategy and thus improve the market product of a business. For example, the French water EVIAN and CHRISTALINE come from the same source but one is the most expensive in the country (Evian) and the other the cheapest (christaline). Evian’s value added is huge, that the reason why they sell much more than christaline. Its value added is intrinsic of the company. If two companies have different value added they will have different achievement because one of them will be capable to create more with the same foundation/root/base.

To conclude, we can say that Value added is an important notion in order to understand the connections between the business and its product markets. Indeed there is a connection between the business and its product markets since to bring a product on a market, business is needed. The calculation of value added enable to identify a business strategy like for example the vertical integration which consists for a company in manufacturing the most part of its product in order to have a high value added ratio. Value added


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