LINKING RESEARCH-AND-DEVELOPMENT TO GROWTH AND SHAREHOLDER VALUE

OVERVIEW: The increase in shareholder value realized from seemingly modest increases in real growth rates is surprisingly high, and herein lies the financial rationale for sustained investment in R&D. At the same time, R&D expenditures are a charge against current earnings, and are thus negatively linked to shareholder value through the price/earnings ratio. This article examines how R&D productivity is the key to balancing the positive (growth) with the negative (cost) to maximize shareholder returns, and proposes a quantitative model to aid decision-making regarding the ''right'' amount of R&D to invest for future growth.