What is the difference between added value and the profit of a business? Explain clearly.

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The biggest difference between profit and added value is that the former is much easier to quantify. Profit equals the cost of sale minus costs of production, transportation, and marketing. If a pen sells for one dollar and costs ten cents to produce, then there is an initial ninety cent profit per pen.

Value added is more subjective. It can be calculated monetarily to a degree; for example, if the Cleveland Browns win the Super Bowl and sales of Browns merchandise surges, that can be tracked, and it can be determined how much money the Super Bowl win netted the team in additional merchandise profit. But value added also involves perceptions, which are difficult to gauge. An organization that supports local charities will raise internal value, in terms of respect and admiration, among many customers. Stores with great customer service will entice most shoppers to come again. But how much this type of value adds to the bottom line is uncertain. One can, for instance, applaud Starbucks's corporate ethos, yet still buy daily coffee from the corner kiosk. Or one can love Costco's friendly checkers but opt to shop at the neighborhood Safeway.

One way value added could be measured is by the increased price a prestigious brand sells for over its competition. Another measure might be the stock market, to see if the company's stock is selling for a high amount over profit, which could be considered its value added. But prices fluctuate, and stock valuation can be deceiving. This is why value added is a financial gray area, compared to the relatively black-and-white world of profit and loss.

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