Research & Development

Research & development (R&D) expense refers to the cost associated with the research & development of a company’s goods and/or services. R&D activities involve conducting systematic research in order to attempt to discover specific solutions to a problem or create a new product.

R&D expense is usually very high in fields like pharma, oil & gas and specific kinds of technological firms. When assessing companies from these sectors, it is important to check whether R&D expense on an absolute basis as well R&D expense in relation to sales is increasing or at least stable. A company that does not invest sufficiently in R&D will lose its competitive advantage over a period of time as it will not be able to develop any new product or service.