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Interrelation of value added elements and company's financial performance

Author

Listed:
  • Željana Aljinović Barać
  • Ljerka Markota
  • Vinko Belak

Abstract

Business value added is a complex multilayer category whose elements are conflicting from the perspective of the company. It can be defined as the difference between revenues and costs of purchased or produced goods and services. Elements of the value added structure are: salaries, wages and employee compensations; interests; income taxes and net profit. Therefore, higher added value generates higher profits and each of value-added elements has a specific impact on the company's financial performance measured by return on investment. The aim of this paper is to research and analyse the impact of value added, as well as its elements, on the company's profitability. The research hypothesis is that optimisation of the level and structure of value added elements can increase the overall financial performance. The verification of empirical evidence will be provided through the sample of the Croatian listed companies in the period 2000-2008. The obtained results indicate that the return on investment ratio is positively correlated with all the elements of value added. In other words, it can be expected that more profitable companies create more value added and vice versa.

Suggested Citation

  • Željana Aljinović Barać & Ljerka Markota & Vinko Belak, 2013. "Interrelation of value added elements and company's financial performance," International Journal of Economics and Business Research, Inderscience Enterprises Ltd, vol. 6(4), pages 455-467.
    • Handle: RePEc:ids:ijecbr:v:6:y:2013:i:4:p:455-467
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