be shown in company entries where there has been research and development expenditure of over 1% of market capitalisation as shown by the latest Annual Report.
Price-to-Research Ratio = Market Capitalization / R&D Expense
For example, let's assume that Company XYZ spent $5,000,000 on R&D last year. It has 10,000,000 shares outstanding trading at $5. Using the formula above, Company XYZ 's price-to-research ratio is:
Price-to-Research Ratio = (10,000,000 x $5) / $5,000,000 = 10
It is important to note, however, that R&D spending is not a guarantee that future profits from that R&D will ever materialize. Nevertheless, the price-to-research ratio can provide insight into companies that compete within the same industry, because R&D intensity can vary widely. Thus, the definition of a "high" or "low" ratio should be made within this context.