Price-To-Innovation-Adjusted Earnings

AAA

DEFINITION of '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.

Price-To-Innovation-Adjusted Earnings

INVESTOPEDIA EXPLAINS 'Price-To-Innovation-Adjusted Earnings'

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
  1. Diffusion Of Innovations Theory

    A hypothesis outlining how new technological and other advancements ...
  2. Stock And Warrant Off-Balance Sheet ...

    A financing option developed to help biotechnology companies ...
  3. Return On Innovation Investment

    A performance measure used to evaluate the effectiveness of a ...
  4. New Indications

    A term used by medical companies and professionals to signify ...
  5. Research And Development - R&D

    Investigative activities that a business chooses to conduct with ...
  6. Price/Earnings To Growth - PEG ...

    A stock's price-to-earnings ratio divided by the growth rate ...
Related Articles
  1. Buying Into Corporate Research & Development ...
    Markets

    Buying Into Corporate Research & Development ...

  2. The Ins and Outs Of In-Process R&D Expenses
    Investing

    The Ins and Outs Of In-Process R&D Expenses

  3. Texas Ratio Rounds Up Bank Failures
    Personal Finance

    Texas Ratio Rounds Up Bank Failures

  4. 12 Things You Need To Know About Financial ...
    Investing Basics

    12 Things You Need To Know About Financial ...

comments powered by Disqus
Hot Definitions
  1. Walras' Law

    An economics law that suggests that the existence of excess supply in one market must be matched by excess demand in another ...
  2. Market Segmentation

    A marketing term referring to the aggregating of prospective buyers into groups (segments) that have common needs and will ...
  3. Effective Annual Interest Rate

    An investment's annual rate of interest when compounding occurs more often than once a year. Calculated as the following: ...
  4. Debit Spread

    Two options with different market prices that an investor trades on the same underlying security. The higher priced option ...
  5. Odious Debt

    Money borrowed by one country from another country and then misappropriated by national rulers. A nation's debt becomes odious ...
  6. Takeover

    A corporate action where an acquiring company makes a bid for an acquiree. If the target company is publicly traded, the ...
Trading Center