Corporate Finance

Essay by roadrunnr70University, Master'sA, January 2010

download word file, 4 pages 5.0

As the unemployment rate in the United States stands at 10%, the highest it has been since 1992, the recession is on the precipice and poised to fall. It seems that in order to reduce that astronomical rate, a higher growth rate of Gross Domestic Product (GDP) is required for the country. The US already has the largest world economy, which is based on a market-oriented economy, therefore firms and private individuals make most of the decisions. Since value added is represented by the wealth created by a business entity's own and employees' efforts, the contribution of an entity is measured at the micro-economic level to the GDP, and perhaps a subsequent growth in the GDP (Arangies, et al, 2008). This could possibly help minimize the US unemployment problem.

Profit is revenue from sales minus all the costs. Profit is also a subjective topic, so a VAS measures wealth, for a larger group of stakeholders, as a value added rather than profit, which is created for one group of stakeholders.

It can improve the profit and loss account through rearrangement and a different focus. The Profit and Loss Statement does not provide any information showing the extent of the value or the wealth created by the company for a particular period. Contribution to the company by other stakeholders cannot be assessed through the Profit and Loss Statement. Hence, there is a need to modify the existing accounting and financial reporting system so that a business unit is able to give importance to judge its performance by indicating the value or wealth created by it. As concluded by Meek and Gray (1988), "as a supplemental disclosure, value added statement can redirect attention to certain wider implications of corporate activity" (p. 81).

The financial statement of a firm tells a financial...