According to BIS ( Department for Business innovation and skills ), Value Added measures the amount of wealth created by a company and is of particular importance since it reflects the ability of companies to provide their customers with what they want and are prepared to pay for. As such, it provides a broader perspective on a company‟s economic contribution than operating profit. Mathematically, Value Added = Company Sales – Bought-in goods.
Value added is regarded as one of the most important objective of a Firm or a company because it measures the amount of the wealth created by a company, from where we can analyze how a particular company is contributing to the economy of a certain country. Every year the „Value Added Scoreboard‟ measures the overall growth of a company and examines the efficiencies. The analysis will be in many different sectors, sometimes differentiated by a country or a region which we will talk in this paper later. The British Minister of State for Science and innovation Lord Paul Drayson mentioned in his ministerial foreword that innovation is essential to national competitiveness and to ensure that countries can respond to global challenges and opportunities. He also mentions the clear ambition of British government to make the UK the best place to do business. Chancellor of the Exchequer Mr. Alistair Darling mentioned his support to innovative businesses in the UK. Many people believe that the coming century will be an Asian century with Asia contributing one third of the global GDP. This is also a good reason to make the UK and Europe most welcoming place for businesses and especially innovative businesses. As Darling „There are many opportunities for the UK firms, we are helping them to meet that challenge targeting skills, supporting exporters through UK Trade and Investment and backing innovation with measures like the Technology Strategy and R&D tax credits. Helping companies turn the ideas of today into the goods and services of tomorrow‟. This shows that the British government is determined to help the government and to support them in every step.
Table of Contents
2. Introduction
2.1 Importance of Value Added
2.2 Pattern of Value Added
2.3 Sectorial Distribution
2.4 Geographical Distribution of Value Added
2.5 The Efficiency of Value Added Creation
3. Definition, Calculation and the use of Value Added
3.1 How a company’s Value Added are calculated
i) Operating profit
ii) Employee Costs
iii) Depreciation
iv) Amortisation & Impairment
3.2 The uses of Value Added
4. Value Performance of BMW
4.1 Short History
4.2 Current Situation
4.3 Performance of BMW
4.4 BMW Group Revenues by region
4.5 BMW Value Added statement
4.6 Conclusion
Objectives and Topics
This paper examines the fundamental concept of Value Added, exploring its definition, calculation methods, and strategic importance for firms within the European Union. Furthermore, it provides a comprehensive performance evaluation of BMW, specifically analyzing the impact of the 2008 financial crisis on its market position and value creation.
- The theoretical foundations and importance of Value Added for businesses.
- Methodological approaches to calculating Value Added within corporate accounts.
- Sectorial and geographical analysis of value creation across Europe.
- Efficiency metrics and the strategic utilization of generated Value Added.
- Case study: Analysis of BMW's performance during the 2008 global recession.
Excerpt from the book
2.1 Importance of Value Added:
Value added measures the amount of wealth created by a company. This is how we can judge a company how efficiently it worked in the previous year and how well it could satisfy its customers. We calculate the value added by subtracting what a company bought in goods by the total sales it made. The result is the value added. The bigger the ratio, the more profit generation. The company can increase its value added by:
i) Introducing innovative new products and service that provide greater value to customers compared to the cost of the materials, components and service to make them.
ii) Selling more existing products and services, for example by improved marketing or by entering markets in new geographies or by raising prices and hence margin.
iii) Reducing the cost of bought in items, for example by more effective procurement and improved design and development and;
iv) Improving productivity by reducing the cost of bought in items required for each unit of output.
Summary of Chapters
2. Introduction: Provides an overview of Value Added as a measure of corporate wealth creation and outlines the paper's focus on European firms and BMW.
2.1 Importance of Value Added: Explains how Value Added serves as an efficiency indicator and outlines four primary strategies for companies to enhance their value creation.
2.2 Pattern of Value Added: Discusses the importance of analyzing value creation patterns across different European sectors and firms.
2.3 Sectorial Distribution: Analyzes which industrial sectors, such as Oil and Gas or Banking, were the leading contributors to value creation in 2008.
2.4 Geographical Distribution of Value Added: Examines the breakdown of Value Added across European countries, highlighting the leading roles of Germany, France, and the UK.
2.5 The Efficiency of Value Added Creation: Describes metrics for evaluating efficiency, including value added per employee and the relationship between asset utilization and value.
3. Definition, Calculation and the use of Value Added: Details the mathematical components of Value Added, including operating profit, employee costs, and depreciation.
3.1 How a company’s Value Added are calculated: Breaks down the specific financial categories used to derive Value Added figures from company accounts.
3.2 The uses of Value Added: Outlines how companies distribute generated value among various stakeholders, including employees, investors, and the government.
4. Value Performance of BMW: Investigates BMW's corporate history and its specific financial performance amid the economic challenges of 2008.
4.1 Short History: Provides a brief chronological background of BMW, from its origins in 1916 to its development as an automotive and motorcycle manufacturer.
4.2 Current Situation: Highlights production figures for BMW vehicles and motorcycles leading up to the 2008 recession.
4.3 Performance of BMW: Reviews the decline in car sales and financial segment results for BMW during the 2008 recession.
4.4 BMW Group Revenues by region: Compares revenue streams across various global markets, highlighting the impact of the global downturn.
4.5 BMW Value Added statement: Presents a comparative analysis of BMW’s Value Added statement for 2007 and 2008, showing the impact of the financial crisis.
4.6 Conclusion: Summarizes the challenges faced by BMW and suggests strategies such as increased R&D and better marketing to secure future growth.
Keywords
Value Added, BMW, Corporate Performance, Financial Crisis, Value Creation, Operating Profit, Employee Costs, Depreciation, Amortisation, Market Revenue, Recession, Efficiency, European Union, Automotive Industry, Strategic Management
Frequently Asked Questions
What is the core focus of this research paper?
The paper focuses on the definition, calculation, and importance of "Value Added" as a performance metric for companies, using the European automotive industry and specifically BMW as a case study.
What are the primary themes discussed in the work?
The work covers corporate wealth measurement, sectorial and geographical value creation trends in Europe, financial accounting basics, and a performance analysis of BMW during the 2008 financial crisis.
What is the main research goal?
The primary goal is to explain how firms create and measure wealth through "Value Added" and to evaluate how BMW’s financial standing and value creation were impacted by the 2008 global economic downturn.
What scientific methods are applied in this study?
The study employs a descriptive and analytical approach, utilizing quantitative data from annual reports and official innovation statistics to compare financial performance across years and sectors.
What is covered in the main section of the paper?
The main section details the mathematical calculation of Value Added, the efficiency metrics for asset and employee productivity, and a detailed performance review of BMW's revenue and regional sales data.
Which keywords best characterize this work?
Key terms include Value Added, BMW, Corporate Performance, Financial Crisis, Value Creation, and Market Revenue.
How is the "Value Added" calculated for a company?
According to the text, Value Added is calculated by adding operating profit, employee costs, depreciation, and amortisation/impairment charges.
What specific impact did the 2008 recession have on BMW's value creation?
The 2008 recession led to a decline in BMW’s total output, a reduction in the company's workforce, and a significant decrease in net value added compared to 2007.
How does BMW utilize its generated value?
BMW distributes its Value Added to pay for the cost of funds (interest/dividends), employee compensation, corporate taxes, R&D investments, and depreciation/amortisation.
- Arbeit zitieren
- Bikal Dhungel (Autor:in), 2009, Value Added Scoreboard - Definition and Calculation of Value Added Business Performance and Evaluation of Performance of BMW, München, GRIN Verlag, https://www.hausarbeiten.de/document/170913
