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Value added, or net output

The difference between total revenue of a firm and the cost of bought-in raw materials, services and components. It thus measures the value which the firm has ‘added’ to these bought-in materials and components by its processes ofproduction. Since the total revenue of the firm will be divided among capital charges (including depreciation), rent, dividend payments, wages and the costs of materials, services and components, value added can also be calculated by summing the relevant types of cost and subtracting that total from total revenues. Although ‘value added’ and ‘net outp ut’ are often used synonymously, net output in the census of production is calculated by subtracting the value of materials purchased (allowing for stock changes) from the value of each industry’s sales. Payments for services rendered by other firms, e.g. R. & D. work, hire of machinery, are not deducted, so that in this technical sense, ‘net output’ is distinguished from ‘value added’, a term sometimes used to describe the contribution of an industry to the gross domestic product.

Reference: The Penguin Dictionary of Economics, 3rd edt.