DEFINITION of 'Return On Innovation Investment'

A performance measure used to evaluate the effectiveness of a company's investment in new products or services. The return on innovation investment is calculated by comparing the profits of new product or service sales to the research, development and other direct expenditures
generated in creating these new products or services.

Also referred to as "R2I" or "ROI2."

BREAKING DOWN 'Return On Innovation Investment'

The focus of this metric is not only to determine how well a company is turning its investments in new products or services into additional profit for the company, but also how efficient it is in its R&D spending. The better a company is able to forecast the demand for its new offerings, as well as how efficient it is in allocating resources, the better its return on innovation investment should be.

RELATED TERMS
  1. Return On Research Capital - RORC

    Return On Research Capital is a measure to assess the revenue ...
  2. Production Efficiency

    Production efficiency is a level at which the economy can no ...
  3. Research And Development (R&D) ...

    Any expenses associated with the research and development of ...
  4. Target Return

    Target return is a pricing model that takes into account the ...
  5. Allocational Efficiency

    Allocational efficiency is a characteristic of an efficient market ...
  6. Disruptive Innovation

    A disruptive innovation is a new use for a technology that breaks ...
Related Articles
  1. Investing

    Key Financial Ratios for Pharmaceutical Companies

    Because of the unique requirements for bringing products to market, pharmaceutical industry stocks are best analyzed by using certain key financial ratios.
  2. Investing

    5 Stock Market Metrics Explained

    Learn how to evaluate a company's performance using metrics such as ROE, EPS and P/E ratio.
  3. Financial Advisor

    How To Calculate Return On Investment (ROI)

    Return on investment allows an investor to evaluate the performance of an investment and compare it to others in his or her portfolio. Find out how to calculate ROI and how to use to your advantage. ...
  4. Financial Advisor

    Working Capital

    Working capital is one of the basic metrics used to evaluate a company's financial health. Find out what it can tell you about a stock and learn how to calculate it.
  5. Investing

    Impact Investing: Improve the World and Your Portfolio

    Socially responsible investing allows you to make a difference in the world or your community while potentially improving your portfolio.
  6. Small Business

    The Most Innovative Entrepreneurs Of 2015

    Investopedia provides a list of the most innovative entrepreneurs with the potential to make it big in 2015.
  7. Financial Advisor

    What's Behind the Decline in Productivity Numbers? 

    There are several theories and hypotheses about low productivity numbers in the American economy. This article examines some of them.
  8. Insurance

    Investing In Medical Equipment Companies

    Learn the basics about medical equipment companies and how investing in them can benefit growth and value investors alike.
  9. Investing

    What Is The Impact Of Research On Stock Prices?

    Find out how stock prices are impacted by the issuance of research reports. Determine the benefits of research to investors and the larger market.
  10. Investing

    Understanding Quantitative Analysis Of Hedge Funds

    Analyzing hedge fund performance quantitatively requires metrics such as absolute and relative returns, risk measurement, and benchmark performance ratios.
RELATED FAQS
  1. What are the benefits of R&D (research and development)?

    Learn about the many benefits of research and development (R&D) efforts for companies in competitive markets, including the ... Read Answer >>
  2. What is the difference between profitability and profit?

    Calculating company profit and profitability are not one and the same, and investors should understand the difference between ... Read Answer >>
  3. What is the difference between efficiency ratios and profitability ratios?

    Learn about efficiency and profitability ratios, what these ratios measure and the main difference between efficiency and ... Read Answer >>
  4. What are some advantages of a market economy over other types of economies?

    Learn what a market economy is, the main assumption behind a market economy and some important advantages it has over other ... Read Answer >>
  5. What metrics are most commonly used to evaluate companies in the electronics sector?

    Learn what metrics are most commonly used to evaluate companies in the electronics sector and the specific qualities of each ... Read Answer >>
  6. What price metrics can be used to compare companies in the industrial sector?

    Discover some of the best equity evaluation measures that investors and analysts commonly use for comparing companies in ... Read Answer >>
Hot Definitions
  1. Fibonacci Retracement

    A term used in technical analysis that refers to areas of support (price stops going lower) or resistance (price stops going ...
  2. Ethereum

    Ethereum is a decentralized software platform that enables SmartContracts and Distributed Applications (ĐApps) to be built ...
  3. Cryptocurrency

    A digital or virtual currency that uses cryptography for security. A cryptocurrency is difficult to counterfeit because of ...
  4. Financial Industry Regulatory Authority - FINRA

    A regulatory body created after the merger of the National Association of Securities Dealers and the New York Stock Exchange's ...
  5. Initial Public Offering - IPO

    The first sale of stock by a private company to the public. IPOs are often issued by companies seeking the capital to expand ...
  6. Cost of Goods Sold - COGS

    Cost of goods sold (COGS) is the direct costs attributable to the production of the goods sold in a company.
Trading Center