Added value

Added value

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Added value in financial analysis of shares is to be distinguished from value added
Value added
In economics, the difference between the sale price and the production cost of a product is the value added per unit. Summing value added per unit over all units sold is total value added. Total value added is equivalent to Revenue less Outside Purchases...

. Used as a measure of shareholder value
Shareholder value
Shareholder value is a business term, sometimes phrased as shareholder value maximization or as the shareholder value model, which implies that the ultimate measure of a company's success is the extent to which it enriches shareholders...

, calculated using the formula:
Added Value = Price that the product/service is sold at - cost of producing the product


Added Value can also be defined as the difference between a particular product's final selling price and the direct and indirect input used in making that particular product.

The difference is profit for the firm and its shareholders after all the costs and taxes owed by the business have been paid for that financial year. Value added or any related measure may help investors decide if this a business that is worthwhile investing on, or that there are other and better opportunities (fixed deposits, debenture
Debenture
A debenture is a document that either creates a debt or acknowledges it. In corporate finance, the term is used for a medium- to long-term debt instrument used by large companies to borrow money. In some countries the term is used interchangeably with bond, loan stock or note...

s).

EXAMPLE A:- A retailer, such as a jeweler could present items in an attractive display, create a luxury feel to the shop and offer a gift wrapping service. This could make the customers more willing to pay higher prices as they think that the products are of higher quality.

For other consultancy measures for shareholder value, see
  • Economic Value Added
    Economic value added
    In corporate finance, Economic Value Added or EVA, a registered trademark of Stern Stewart & Co., is an estimate of a firm's economic profit – being the value created in excess of the required return of the company's investors . Quite simply, EVA is the profit earned by the firm less the cost of...

  • Market value added
    Market value added
    Market Value Added is the difference between the current market value of a firm and the capital contributed by investors. If MVA is positive, the firm has added value. If it is negative, the firm has destroyed value...

    .