UK Accounting Glossary
Value-added is used in several ways to indicate an enhancement to a product or an entity. By one definition, value-added is the difference between the cost of materials purchased by a firm and the price at which it sells the goods that use those materials. In a related usage, a value-added tax, common in Europe, is a levy on goods or service based on the increase in price, or value-added, at each point of the production cycle. As a management technique, companies seek to provide additional value-added in their products as a way of distinguishing them from competitors; value-added in this sense is a means of avoiding commoditization and maintaining profit margins. Finally, economic value-added is used as a measuring rod in financial analysis. While variously calculated, economic value-added attempts to find how much more valuable a company is at the end of a period than it was at the start of it.
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This glossary post was last updated: 5th February 2020.