Research and Development (R&D)

What Is Research and Development (R&D)?

Research and development (R&D) includes activities that companies undertake to innovate and introduce new products and services. It is often the first stage in the development process. The goal is typically to take new products and services to market and add to the company's bottom line.

The term R&D is widely linked to innovation both in the corporate and government sectors. R&D allows a company to stay ahead of its competition. Without an R&D program, a company may not survive on its own and may have to rely on other ways to innovate such as engaging in mergers and acquisitions (M&A) or partnerships. Through R&D, companies can design new products and improve their existing offerings.

R&D is separate from most operational activities performed by a corporation. The research and/or development is typically not performed with the expectation of immediate profit. Instead, it is expected to contribute to the long-term profitability of a company. R&D may lead to patents, copyrights, and trademarks as discoveries are made and products created.

Companies that set up and employ entire R&D departments commit substantial capital to the effort. They must estimate the risk-adjusted return on their R&D expenditures—which inevitably involves risk of capital—because there is no immediate payoff, and the return on investment (ROI) is uncertain. As more money is invested in R&D, the level of capital risk increases. Other companies may choose to outsource their R&D for a variety of reasons including size and cost.

Special Considerations

R&D Accounting:- R&D may be beneficial to a company's bottom line, but it is considered an expense. After all, companies spend substantial amounts on research and trying to develop new products and services. As such, these expenses are often reported for accounting purposes on the income statement and do not carry long-term value.

The report is segmented by technologies, such as radiography testing equipment, ultrasonic testing equipment, and magnetic particle testing equipment, among others, used across various end-user industries, such as oil and gas, power and energy, aerospace and defense, automotive and transportation, construction, and other end-users industries, in different geographies. The study covers a comprehensive analysis of the impact of COVID-19 on the market studied.

Materials, fixed assets, or other assets have alternative future uses with an estimable value and useful life.

Software that can be converted or applied elsewhere in the company to have a useful life beyond a specific single R&D project.

Indirect costs or overhead expenses allocated between projects.

R&D purchased from a third party that is accompanied by intangible value. That intangible asset may be recorded as a separate balance sheet asset.