# Evaluate value added of a company

i have the value added of a company for 2 years 2016 and 2017 so to compare these values and to see its evolutioon i divided the value of 2017 by the one of 2016

but some friends told me that the comparison i am doing is false because values should be calculated using same price base

so what should i do to have a correct evaluation ?

thanks a lot in advance for any help

• hi all for an oil company value added can be deflated using industrial hydrocarbon sales price indexes ? means real value added (2017 price 2016)=nominal value added/industrial hydrocarbon sales price indexe (year 2016) ? else how can i deflate values ? thanks a lot in advance for any response
– prep
Nov 24 '18 at 16:08

## 1 Answer

What you are missing is the concept of GDP deflator . Which is there while studying National Income Accounting.

When you are comparing change in Valve Added (GDP) of 2016 and 2017 , the change could have been mainly due to two reasons :-

• Increase in production
• or Change in prices

While comparing Value Added by the company in two years , second reason i.e change in prices would give us false result as while comparing GDP we want to see how much the production has increased/decreased between the years , but the change in prices might show an exaggerated value of GDP if we do not take into account the change in prices .

For getting the correct answer what we do is that we take one year as base year(generally the first year given to us i.e 2016 in your case) and calculate the GDP on the basis of the prices prevalent on that year , so that we get a true picture of real change in GDP .

$$\text{GDP Deflator} = \frac{\text {Nominal GDP}}{\text{Real GDP}} \cdot {100}$$

Where Nominal GDP is the GDP of 2017 at current year i.e 2017 prices And Real GDP is the GDP of 2017 calculated at base year prices i.e 2016

Also remember the formulae $$\text{GDP = Units produced * Price per unit}$$

Do refer to the following hyperlink

Hope you find my answer useful. :)

• Hi @JIM thanks a lot for the response but my problem is that the company produces many products and its difficult to idstinguish unit prices and quantities for all products to just deflate added value Is there any method to deflate it ? Or is there any method to compare between vales of different years without using deflation ? Thanks a lot in advance for any help
– prep
Nov 17 '18 at 15:49
• @prep Your question seems to be unclear as it is missing data , can you see if you can provide all the data given in the question ?
– JIM
Nov 17 '18 at 16:25
• hi @JIM value added of 2015 is 1 639 902 of 2016 is 2 267 700 and of 2017 is 1 995 601 this is all the data i have the company produces gas petrol and gpl
– prep
Nov 17 '18 at 17:10
• so for an oil company value added can be deflated using industrial hydrocarbon sales price indexes ? means real value added (2017 price 2016)=nominal value added/industrial hydrocarbon sales price indexe (year 2016) ? else how can i deflate values ? thanks a lot in advance for any response
– prep
Nov 22 '18 at 19:45
• @prep I am not really sure how to deflate value .
– JIM
Nov 23 '18 at 8:06