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Use R&D Spending in Evaluating Stock

This is Where new Products and Services are Created


There are number of factors to consider when deciding whether a stock is a worthy candidate for your investment dollars.

Growth in earnings, revenue, market share and other markers are important factors. They should be considered on their surface and be used to compare the company to its peers.

Comparing a company’s numbers to industry averages gives you a perspective on the numbers, since different industries will register different levels of debt, for example.

Different Stock Number

One number that usually doesn’t show up on most comparisons is how much the company invests in research and development (R&D).

Obviously, in technology companies this number will be higher in absolute terms and as a percentage of revenue than in other industries.

However, all companies should be involved in some level of R&D to create new products for future growth.

Most popular Web sites report income statements and you will find the R&D expenses listed in the Cost of Goods sold area, which is always the first section of expenses.

Stock Sector Information

Yahoo! Finance has detailed information on sectors and the companies that make up each sector.

If you are considering a company for investment, you should take a quick check of its R&D spending in terms of absolute dollars and as a percentage of revenue.

If the company isn’t at least spending the sector average for R&D, you should ask yourself where does management plan to find new products and services to fuel future growth?

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