Trend
To disclose net value added (NVA) for the last five years to gauge a trend.
Definition
Value added (VA) is defined as the difference between the revenues and the costs of bought-in materials, goods and services. Value added is the wealth the entity has been able to create and that can be distributed among different stakeholders (employees, lenders, authorities and shareholders). In other terms, VA is the sum of the value added to employees, to providers of loan capital, to governments and to owners (in the case of cooperatives, members).
Net value added (NVA) consists of value added from which depreciation has been subtracted.
Measurement methodology
Value added can be calculated using the following:
Direct economic value generated (revenues and other income) minus operating costs (the costs of goods and services purchased from external suppliers). This is normally referred to as gross value added (GVA).
Net value added is calculated by subtracting depreciation of tangible assets from value added.
Equation:
Value Added = 1a + 1b − 2a − 2b
Net Value Added = 1a + 1b − 2a − 2b − 3a − 3b
where:
1a = Revenue;
1b = Other income (investment income, other gains and losses);
2a = Cost of sales (costs of goods and services from external suppliers);
2b = Operating expenses (costs of goods and services from external suppliers);
3a = Cost of sales (depreciation); and
3b = Operating expenses (depreciation).
Potential sources of information
Value-added statement: A financial statement that depicts wealth created by an organization and how that wealth is distributed among various stakeholders comprising employees, shareholders, government, creditors and the wealth that is retained in the business.
The preparation of a value-added statement is based on the data collected within the traditional accounting system, so that value added is calculated on an accruals basis.
If an entity does not prepare a value-added statement, the calculation of value added should be made from data in the organization’s audited profit and loss statement, or its internally audited management accounts (internal management reports for the country-specific data should be used). In particular, if an entity wishes to prepare a value-added statement, operating costs can be derived from all the bills to external suppliers of goods and services (recorded in the accounts payable); the data on employee wages and benefits and the related information flows are normally managed by the human resources function, typically within a compensation and payroll management information system. Many entities use specialized software for collection and elaborating payroll information; payments to the different providers of capital are recorded in specific accounts (e.g. interest or dividends payable) and can be found in the P&L as interest expenses or in the cash flow statement as dividends paid; and community investments in the form of donations are recorded in a specific account that is usually called charitable contributions (in an internal report they will appear as a discrete expense line item most likely called charitable contributions).