... first way to calculate value added is the subtractive method, it uses the following formula: Value Added = S - P (S = sales/turnover; P = purchases/cost of brought in goods) Value added can also be regarded as a net figure. It expresses the value an economic entity (such as a person, a company, an industry) adds to the goods it received (purchased) from other organisations from its own activities. Due to wealth created being allocated in some way value added can also be allocated using the additive method. The additive method uses the following formula: Value Added = OP + LC + D (OP = Operating Profit LC = Labour Costs D = Depreciation) Here is a demonstration of value added taken from annual report of Marks and Spencer: Year Ending Additive 2003 £ (m) 2002 £ (m) Year Ending Subtractive 2003 £ (m) 2002 £ (m) Operating profit before tax and interest Depreciation Labour Cost Value added 761.8 234.9 1.11.2 2112.9 629.1 249.6 1,193.4 2,072.1 Sales Revenue - Value added Purchases Value added 8,0772 2,112.9 5,964.3 2,112.9 8,13.54 2,077.1 5,063.3 2,077.1 Value added for companies can be ...

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