– Under this method, the economy is divided into different industrial sectors such as agriculture, fishing, mining, construction, manufacturing, trade and commerce, transport, communication and other services (primary, secondary, tertiary sectors).

– Then, the net value added at factor cost (NVAFC) by each productive enterprise as well as by each industry or sector is estimated.

– in order to arrive at the net value added at factor cost by an enterprise we have to subtract the following from the value of output of an enterprise:
• Intermediate consumption which is the value of goods such as raw materials, fuels purchased from other firms.

• Consumption of fixed capital (depreciation)

• Net indirect taxes.

• Summing up the net values added at factor cost (NVAFC) by all productive enterprises of an industry or sector gives us the net value added at factor cost of each industry or sector.

• We then add up net values added at factor cost by all industries or sectors to get net domestic product at factor cost (NDPFC).

• Lastly, to the net domestic product we add the net factor income from abroad to get net national product at factor cost (NNPFC) which is also called national income.