Value Added Scoreboard - Definition and Calculation of Value Added Business Performance and Evaluation of Performance of BMW

Term Paper, 2009

19 Pages, Grade: 2,3



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
Table 1: Breakdown of Value Added by E750 Companies
Table 2: Top three sectors in the E750
Table 3: The Biggest Value Added creators of Europe
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

5. Sources

2. Introduction:

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.

So, in this paper we will analyze some fundamentals of Value Added, its importance, patterns of it and how it is divided sectorially. We will mainly focus the firms of the European Union. In the second part of the paper, we will see the basics of calculation of Value Added. In this section, how a firm calculates the Value Added and its uses will be discussed. The final part is the performance evaluation of BMW. Taking 2008 as a basis year, we will see some current developments, some impacts on BMW due to Financial crisis started in 2008 and its market position in Europe and worldwide.

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[1]:

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.

Moreover we have also seen in the past and the present that many large firms as well as small firms tend to merge with other firm in order to raise profit or increase value added. DaimlerChrysler, BMW-Rover, Sony-Ericson are some of the live examples of it.

In some cases we have also seen that the initial aim of increasing value added also leads to a tremendous disaster if some point or management system doesn’t function well. In most cases there are cultural issues, in some cases there are government rules and regulations. There are also some good stories of mergers and acquisitions where the value added sky-rocketed after the acquisition.

The world is being more and more globalized; hundreds of thousands of firms from emerging economies are being launched. They are growing in size and competing with the Firms from developed countries. Developing countries have an advantage of low labor cost, low transportation cost and low labor standards and this makes their game easier than the firms from developed countries. Thatswhy it is the real challenge to the firms of today to remain in an appropriate price and quality and satisfy the customer needs. The European, Japanese and North American firms are using the latest technology goods to secure their market portions. This includes a large cost in Research and Development, Brand management, Designing, Quality, Standards etc. This is vulnerable in present day situation. From the lessons that some firms which were not willing to adjust with modern technology and lifestyles had to get out of the market, the companies today also focus more on non value adding activities. These processes do not add value in the goods but is very essential to win the heart and mind of people. Some of the actions include that service sectors like Sauna allowing a free entry to a customer who has a birthday.

Apart from these things, innovation is most important in value creation. From these arguments we can conclude that the main aim of a firm is to generate profit or increase the value added. This is the most important thing. To achieve this goal, a firm has to move with time, time has changed and it has to change with it. A firm should adjust with the global environment, it should also involve in non value adding activities which could help to increase value addition in the long term. In order to increase it, it should follow the four basic points which we discussed above.

2.2 Pattern of Value Added:

Pattern of value added describes the overview of the pattern about the Firms across Europe. It differentiates the value added in different sections and informs us about the important changes in Value added in the previous year. In this section the overview of top value creating firms in Europe will be evaluated.

The E 750 companies created a value added of 2.717 Pound in 2008. It was an increase of 6% from the last year. Whereas the British companies UK 800 generated a value added of 757 Billion, an increase of 8.2% from the previous year[2]. We can analyze the details in Table 3.

2.3 Sectorial Distribution:

The largest area of top value creation was in Oil and Gas producers and Financial sectors like Banking. Within the UK800, the 153 UK owned companies which are the largest creators of value added, and are also in E 750, are concentrated in Banking, Oil and Gas production and Support services[3].

Below is the figure representing the sectorial datas of value creation by many companies.

illustration not visible in this excerpt


As we can see in the picture above, Banks and Oil & Gas producers created 26% of value added together. At the same time, the number of companies in these sectors was just 16% where Banks alone accounted for 13%. It gives us a clear picture of small number of Oil & Gas producers. Other big sectors of value added were Automobiles & Parts accounting for 7%, then Fixed line telecommunication, Construction and materials, Industrial Transportation respectively 3%, 3%, 6% and 4%. Whereas, the UK, a service based economy, has a different story. In the British economy, Mining, Support Services, Travel & Leisure etc also poses an important position.

2.4 Geographical distribution of Value Added:

Germany, France and the UK are three largest economies of Europe. So, they also contribute the largest firm and largest number of firms with top value added goods.

In 2008, the German companies were the leading generators of Value Added. Germany, France and the UK accounted for 58% of the total value added[4]. The top 10 countries of the European Union were responsible for 89% of the total E 750 Value Added. The Table below shows the top 10 countries by value added:

Table 1: Breakdown of Value Added by E750 companies by country (2008)[5]

illustration not visible in this excerpt

Germany’s economy is mainly based upon large share of Automobile industries, Financial Sectors and other industrial production whereas the UK have the largest financial sector in



[2] Page 7

[3] Page 7

[4] Page 9

[5] Page 9

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Value Added Scoreboard - Definition and Calculation of Value Added Business Performance and Evaluation of Performance of BMW
Cologne University of Applied Sciences
International Management and Business Consulting
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ISBN (eBook)
ISBN (Book)
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Value Added, value added scoreboard, performance of BMW
Quote paper
Bikal Dhungel (Author), 2009, Value Added Scoreboard - Definition and Calculation of Value Added Business Performance and Evaluation of Performance of BMW, Munich, GRIN Verlag,


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