Value added shows health in industry

Written by: MF | Published:

The latest Value Added Scoreboard produced by the Department of Trade and Industry’s Innovation Unit suggests that energy and health based businesses are doing particularly well.

Shell, BP, GlaxoSmithKline and BT are listed in the top 15 wealth creators in Europe, while the UK has 24 companies in the top 100, all adding high value to the economy.
The basis for the Scoreboard is a study of Value Added, or sales less bought-in materials, components and services. It can be calculated from profit before interest and tax by adding back employee costs, depreciation and amortisation. The two measures used are P1, value added per employee, and P2, value added divided by employee costs plus depreciation.
Even with its restriction to the top 500 UK and top 300 European companies, the 108 page Scoreboard report is heavy going. However, one thing is abundantly clear: there is a very strong positive relationship between value added per employee and investment per employee, with UK engineering still lagging behind its European rivals.
Despite this, the report’s author, Dr Mike Tubbs, says that one of the main conclusions has to be that it is much more important how a company is run than which sector it is in. Good management includes investing in R&D and capital equipment while constantly seeking new market opportunities. Bad management, he adds, equates to extracting maximum profits in the short term by cutting investment. Tubbs claims, too, that early results of a parallel study on acquisitions indicates that this other favoured method of achieving rapid growth is a “doubtful way to go forward”.
Copies of the Value Added Scoreboard may be obtained by e-mailing publications@dti.gsi.gov.uk. Alternatively, access the DTI’s website.


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