Difference between benefit and added value

We’ve often heard the term value-added in business strategies to explain the benefit or benefits of buying a product or service, but economically speaking, what’s the difference between profit and value added?

Value added is the selling price of a product or service minus the cost of the materials or services to produce it, or in other words, the resources that a company has acquired to transform them into another product or service. service with a higher value. For example, a car manufacturer buys all parts from different suppliers to assemble the car. At the same time, there are a number of indirect costs or services such as electricity used for manufacturing that will also be part of the total cost of manufacturing the car. Instead, the selling price of the manufactured car will be higher than the cost you paid to your suppliers. This difference is the added value of the company.

The added value obtained can be used for 5 purposes:

Staff costs: wages paid to workers.

Financial expenses: interest paid to banks or lenders.

Taxes: either corporation tax or personal income tax for individuals.

Depreciation / Provisions: self-financing to reinvest in the company’s assets that are depreciating.

Profit: which will go to reserves to capitalize the company or to dividends for shareholders.

This value added that we have calculated is the gross value added and the sum of the gross value added of all the companies in a country is what we call Gross Domestic Product (GDP).

In short, obtaining added value allows us to see the value that the company generates in society or in the country, from the perspective of social responsibility. However, it should not be confused with the profit of the company, as the profit only corresponds to one of the 5 portions that are part of the added value.