Research and Development Costs

Research and Development Costs

The costs a company incurs in process of developing new goods and services to best suit the company's and consumer needs. For example, a vacuum cleaner company may spend a significant amount of money researching and developing profitable vacuum cleaner improvements. The costs decrease the company's profit in the short term but create the potential for higher profits in the medium and long term. As a result, many analysts consider it a positive sign when companies devote a large amount to their research and development costs.

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research and development costs (R&D costs)

The costs that are incurred during the development and introduction of new products to market or during the improvement of existing products. Although R&D costs tend to penalize current profits, they eventually benefit the firm's future profits when new products developed as a result of the research become profitable themselves. Many analysts regard a high proportion of sales revenue devoted to R&D as a positive sign relative to a firm's profit potential and future stock price.