Price-To-Innovation-Adjusted Earnings
A variation of the price-to-earnings ratio (P/E ratio) that takes a company's level of spending on research and development (R&D) into account. It is calculated by adding any expenditure on R&D back to earnings and then calculating the P/E ratio for that company.
Investopedia Says:
This calculation is extremely useful when evaluating company performance in industries such as software development, pharmaceuticals and computers. Companies in these industries are pressured by the need to innovate. However, accounting principles hurt these companies by forcing them to deduct R&D spending from earnings. Heavy expenditures on R&D shows that a company is willing to take risks to further its growth. This calculation allows an investor to identify these innovative companies. Related Terms:
Growth Company
Growth Investing
Price-Earnings Ratio - P/E Ratio
Price/Earnings To Growth - PEG Ratio
Research And Development - R&D
Stock And Warrant Off-Balance Sheet R&D - SWORD |