Price-To-Research Ratio - PRR

Definition of 'Price-To-Research Ratio - PRR'


A measure of the relationship between a company's market capitalization and its research and development (R&D) expenses. The price-to-research ratio is calculated by dividing a company's market value by its last 12 months' worth of R&D expenditures. PRR is very important in research-based businesses such as pharmaceutical companies, software companies, hardware companies and consumer products companies. Without spending on scientific and technological work, these firms cannot generate new products, processes or services and will not grow, increase their market share or improve their profitability.

Investopedia explains 'Price-To-Research Ratio - PRR'


In an industry heavily dependent on R&D, the price-to-research ratio is an important indicator of a company's ability to generate profits. Increasing earnings cannot tell the whole story because a company can increase earnings by slashing R&D expenses, which may stifle long-term growth and profitability. However, a favorable price-to-research ratio does not guarantee the success of future product innovations, nor does a large amount of R&D spending guarantee future profits. What really matters is how effectively the company is employing its R&D dollars. Also, the appropriate level of R&D spending varies by industry and depends on the company's development stage.



comments powered by Disqus
Hot Definitions
  1. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will be executed at a specified price (or better) after a given stop price has been reached. Once the stop price is reached, the stop-limit order becomes a limit order to buy (or sell) at the limit price or better.
  2. Pareto Principle

    A principle, named after economist Vilfredo Pareto, that specifies an unequal relationship between inputs and outputs. The principle states that, for many phenomena, 20% of invested input is responsible for 80% of the results obtained. Put another way, 80% of consequences stem from 20% of the causes.
  3. Pareto Principle

    A principle, named after economist Vilfredo Pareto, that specifies an unequal relationship between inputs and outputs. The principle states that, for many phenomena, 20% of invested input is responsible for 80% of the results obtained. Put another way, 80% of consequences stem from 20% of the causes.
  4. Budget Deficit

    A status of financial health in which expenditures exceed revenue. The term "budget deficit" is most commonly used to refer to government spending rather than business or individual spending. When referring to accrued federal government deficits, the term "national debt” is used.
  5. Floating Exchange Rate

    A country's exchange rate regime where its currency is set by the foreign-exchange market through supply and demand for that particular currency relative to other currencies. Thus, floating exchange rates change freely and are determined by trading in the forex market.
  6. Underwriting

    1. The process by which investment bankers raise investment capital from investors on behalf of corporations and governments that are issuing securities (both equity and debt). 2. The process of issuing insurance policies.
Trading Center