Complete 5 page APA formatted essay: Describe the methods used to calculate value added. How does value added contribute towards understanding the connections between the business and its product markets.
The discussion will investigate different methods of calculating added market value, and determine how added market value contributes to an understanding towards the connection between the business and its products market.
Within the overall framework of added market value, economist assert that value added calculation is crucial for classical business accounts. Economists interpret added market value as consisting of the ability to determine the business earnings while the turnover is not precise because the business expenses are not considered. In this perspective, value added is the subtraction of output (expenses) compared to the inputs. Therefore, outputs that are not produced by the business are not considered. Some economists calculate value added in both addictive and subtractive methods, (Berger, 1999, p.34). For instance, subtractive value added is estimated by subtracting material and services costs and from the revenue of sales. The added market value or benefits indicate revenue generation. Similarly, it can be evaluated by deducting the investment capital of the business from the business value. These represent the profit of the firm, or the total cash the organization has produced using the utilized cash.
Addictive method determines value added by summing up price of labor (such as social charges) benefits from the operation and devaluation. This allows the firm to investigate the means of distributing the generated revenues. Addictive method also sums up the adjusted recorded value of equity and debts investments of the business, (Grant, 2003, p.28). These indicate the used money of the enterprise or the total cash utilized in the business.
The increased method multiplies the amount of the marketplace share of stock by the accessible share numbers for public businesses. This establishes the firm’s market value, or the total amount of cash the firm can produce. If the enterprise is unknown, investigate
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