Research & development (R&D) expense refers to the cost associated with research & development of a company’s goods and / or service. R&D activity involves conducting systematic research in order to attempt to discover specific solutions to a problem or create a new product.
R&D expense is usually very high in fields like pharma, oil & gas and specific kinds of technological firms. When assessing companies from these sectors it is important to check whether R&D expense on an absolute basis as well R&D expense in relation to sales is increasing or at least stable. A company which does not invest sufficiently in R&D will lose its competitive advantage over a period of time as it will not be able to develop any new product / service.