How to make ‘value added’ better visible in a financial report. Human skills and faculties as value creating factor.
A company buys raw materials and creates products and services from it, which are needed by clients. Clients pay for such products and services. These payments are income, or revenue, for the company. With such income, the company is able to pay its suppliers, and also its employees. Time-wise suppliers need to be paid first. Therefore the company needs cash in the form of a loan, of start-up money, or profits made in past periods.
The products and services created by the company are actually created with the skills and faculties of its employees. These skills are their own. They get paid – in form of a salary – not for their skills but for the products and services they provide. In that sense each employee can be seen as a entrepreneur within the company. His or her skills and ideas are the true value creators.
This can be made visible also financially by showing salaries not as cost but as a contribution to value creation. Then a value creation report would show first the income from clients, minus the value paid to suppliers for the raw materials, or half finished products. The difference between the two is the value created by the skills and faculties of the employees.
Employees and co-workers need a salary to be able to make a living. But this is not being paid for the work and time provided. We think it is. But actually the salary is being paid for the delivery of a product or service from a human being with skills and ideas. This is a change of concept within our thinking and perception. As a result we become more conscious for the spiritual content of our own skills and faculties, applied in a company. We become more conscious about why we are working in a certain company or institution and why we like to use our skills to produce something meaningful for the client.
In a financial report the salaries would be shown as a contribution to the value creation. More specifically one would show it as distribution of the value created (through income minus value paid to suppliers) paid to employees for their products and services delivered. Remaining value created would be shown as distributed to the state in form of taxes, to shareholders in the form of dividends, to stakeholders in the form of donations.
Such a new form of a financial report showing the value creation may support that our consciousness and perception will change. Today we see employees as cost factor, costing a salary. Actually we may want to see them as human beings delivering a product or service, or both, by using her or his skills and ideas.
An example of such a financial report can be found in the annual report of Weleda 2016.
As the CFO of Weleda says in the report this form of a financial report is only a beginning and needs to be developed further in order to show value creation on all levels and teams of a company.