Business and strategy

Research and Development (R&D)

The money a company spends to create new products and improve existing ones, such as new medicines, chips or software.

Why does it matter?

It is an investment in future revenue, and for technology and pharmaceutical companies it can be one of the largest costs.

How do I read it?

In U.S. accounting, most R&D counts as a cost in the year it is spent, which lowers today's profit even though the benefit may come years later. Not every project succeeds.

Example

A drug company can spend more than a billion dollars over many years to develop one new medicine, and many candidates fail in testing before reaching patients.