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?
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.