Value creation

economic-dictionary

The creation of value is the capacity that companies or societies have to generate wealth or utility. To do this, through its economic activity. In the field of strategic management, it is defined as the main objective of commercial companies, as well as their reason for being.

In the economic literature, and especially the business one, the aim of a company has been, from its origin, the search for the maximum possible profit. The theory of the company has developed this idea and indicates that it is the creation of value, the factor to take into account when designing a business plan and operating in an activity.

According to the theory of the company, commercial or economic organizations base their work and operation on the creation of value. That is, they have expectations on which they base their work and set certain objectives for a certain period of time.

Measurement of value creation

The accounting of the created value has a large number of modalities and possibilities in the economic literature within strategic management. In other words, it is a field of analysis and study in which the very concept of value is subjective and varies according to the car or researcher. For this reason, value creation is a difficult parameter to estimate accurately.

The most widespread trend takes into account the profit obtained. But, it should be noted, it necessarily requires those costs that the company has incurred when achieving it. Logically, if the results obtained are quantitatively greater than the resources used in the economic activity, we will say that there has been a creation of value. In this regard, it is often referred to as the Fundamental Principle of Economic Added Value or EVA. That is, a measure that is equal to the net operating profit of a company, minus the cost of all the capital required to produce that income.

Another of the most common ways to measure the value creation of a company is the study of the value created for shareholders. Since these are the proprietary agents of the same and the most interested in its proper functioning. Alternatively, in business management, another trend is the study of brand equity at different times, in order to analyze its evolution.

Difference between company value and value creation

It is important not to confuse the concept of value creation with the value of a company. Since it is often an existing problem that requires explanation. The main difference between the two definitions is that the value of a company is a fund variable. While, on the other hand, the creation of value is flow, and it develops in a period of time in question.

It is true that both variables influence each other. This is because large companies have a greater chance of creating more value, and alternatively a company that manages to create a lot of value has a better chance of survival and of becoming a larger company.

Tags:  comparisons biography Spain 

Interesting Articles

add