What benefits are gained from value-added statements? Should firms just rely on financial statements? Why or why not? What role does risk assessment play with respect to corporate financial management?© BrainMass Inc. brainmass.com October 16, 2018, 2:26 pm ad1c9bdddf - https://brainmass.com/business/financial-statements/value-added-statements-financial-management-284095
What benefits are gained from value-added statements?
A value-added statement is a financial statement which shows how much wealth or value has been accumulated by the company through the use of its capital, manpower, and other resources. The value-added statement also shows how the value is allocated among different stakeholders such as the lenders, shareholders, employees, etc. in a specific accounting period. Normally, value added is computed by deducting materials from turnover bought-in services and the result is allocated in the form of interest and dividends to lenders and shareholders, as taxes for the government, as salaries for the employees, and a portion is retained for reinvestment.
The benefits of Value-Added Statements stems from the technique's multi-dimensional scope as compared to the conventional reporting mode of financial affairs. A few of the most cited advantages of Value-Added Statements are as follows:
? It generates and projects a good organizational climate because it emphasizes the importance of the workers in achieving a positive final result for the firm. An increased favorable attitude by the staff toward their companies is one of the results of the disclosure of the value added statement.
? Value-added reporting may serve as a practical way of introducing productivity bonuses which can link the rewards to changes in the value added amounts.
? Value added-based ratios can be useful in predicting important and relevant economic events to the firm as they may act as good diagnostic cues.
? Value added reporting is useful in measuring national income because it involves aggregating the value added or net output of firms. ...
The solution discusses the benefits gained from value-added statements and the role of risk assessment to corporate financial management. References are included.