Value Added Versus Financial Statements, Essay Example

Value added is used to describe the activities of a business and the employees of that business. (Sasol) “The value added statement reports on the calculation of value added and its application among the stakeholders in the group. This statement shows the total wealth created and how it was distributed, taking into account the amounts retained and reinvested in the group for the replacement of assets and development of operations.” (Sasol) Corporations use these statements for a variety of tasks such as risk management, evaluating operations within various departments, and of course, maximizing profit.

What Benefits Are Gained From Value-Added Statements

Value added statements have several benefits for shareholders and business owners alike. Value added financial statements are helpful for risk assessment because they report on the activities of a business (Meek & Gray, 1988; Penman, 2001; Sasol ). Shareholders could use this information to determine if the company is being run at maximum efficiency. Management can use the information to make important decisions about personnel and finally, financial departments can use them to make decisions on what operations are currently helping to generate a profit.

Should Firms Just Rely on Financial Statements? Why or Why Not

Firms should rely on more than financial statements when making decisions that will affect the company. While financial statements are a vital part of understanding the health of the business, there are other contributing factors to a company’s success; such as advertising and promotion as well as HR decisions. Relying solely on financial statements for company decisions is dangerous because it could cause the company to miss out on subtle influences that may be inherently valuable to the company’s continued success. For example, a corporation that relies solely on financial statements could overlook the efficacy of their in-house advertising department. While many firms have outsourced advertising overseas, some of these same firms have dealt with several significant obstacles, including a lack of quality. While it may sound old-fashioned, in the long run the best thing that a company can do is to focus on quality. When the quality of the products or services is satisfactory, the customers and their money will follow. Likewise, when corporations employ ideas that are unique to their market, they enjoy continued financial success. One such company that is continuing to grow even in a terrible recession is the restaurant chain Cracker Barrel. This company continues to grow because of their dedication to quality products, customer service, and the unique idea of combining a country-style retail store with a Southern-style restaurant.

What Role Does Risk Assessment Play With Respect to Corporate Financial Management

Risk assessment is an integral part of corporate financial management. Successful financial planning requires an in-depth risk assessment. This gives shareholders peace of mind and allows for the company to prepare for any risks that they might face in the upcoming fiscal year. The financial department evaluates risk and gives this information to upper management so that they can make an informed decision about what steps to take next.

Conclusion

Value added statements are important for successful financial planning. These statements give shareholders a peace of mind and show businesses where they stand and how they can improve efficiency. However, firms should rely on more than just financial statements. Quality products and services as well as unique ideas are important factors in customer acquiring and retention. Using risk assessment properly can help determine the outcome of a firm’s future.

References

Meek, G. K., & Gray, S. J. (1988). The Value Added Statement: An Innovation For U.S. Companies. Accounting Horizons, 2 (2), 73.

Penman, S. H. (2001). Financial Statement Analysis Security Valuation. United States: MCGRAW-Hill Companies (OH).

Value Added Statement. (n.d.). Sasol. Retrieved November 28, 2010, from http://sasol.investoreports.com/sasol_ar_2006/review/html/sasol_ar_2006_117.php