valueadded

ValueAdded is a term used in economics and business to describe the net value that a producer adds to goods and services as they move through the production process. At the firm level, it is defined as the value of output minus the value of goods and services purchased from other producers (intermediate consumption). In practice, value added equals the incremental value created by labor, capital, and entrepreneurship in turning inputs into final products.

At the national level, gross value added (GVA) is the aggregate value added by all resident producers. When summed across sectors and adjusted for taxes and subsidies on production, GVA contributes to gross domestic product (GDP). In many statistical systems, GDP can be expressed as the sum of gross value added plus taxes on production minus subsidies on production, reflecting prices and government interventions.

Value added is a core measure for assessing productivity, industry contributions, and the efficiency of the supply chain. It is also used in business analytics to monitor pricing, profitability, and value-chain performance. A simple example: if a company purchases raw materials for 100, processes them into a final product worth 180, the value added is 80.

Value added is distinct from total revenue or profit and can be influenced by price changes and accounting conventions. It underpins the concept behind value added tax (VAT), a common consumption tax applied to the value added at each production stage. VAT is typically collected by businesses on behalf of the government, with the end consumer bearing the effective tax through prices.