In contrast to the former two approaches, Added Value starts from value added to calculate added value. The connection between the two measures is Added Value = Value Added - Labor Costs - Capital Charge = Operating Profit - Capital Charge. The Added Value approach uses the following basic elements for the calculation of its key measure(s):
• Adjusted profit = operating profit
• Capital (or operating assets) = capital employed
• Rate of return = return on capital employed
(ROCE)
• Cost of capital = normal cost of capital