Term · Business Model & Operating KPIs
R&D Intensity
In briefR&D intensity is the share of research and development expenditure in revenue and indicates innovation intensity. It is industry-dependent, meaningful only in peer comparison, and can be distorted by capitalized development costs, which overstates earnings quality.
Definition
R&D intensity relates research and development expenditure to revenue and shows what share of earnings a company invests in innovation. It is industry-dependent and meaningful only in peer comparison. Capitalized development costs can distort the picture.
How it is calculated
Formula. R&D expenditure ÷ revenue × 100%
Why it matters for small caps
For technology-heavy small caps, R&D intensity determines future competitiveness, but with capitalized costs it can overstate current earnings quality.
Common misreadings
- High R&D intensity is interpreted as innovative strength, even though capitalizing rather than expensing can flatter the result.
In the process
Frequently asked
How is R&D intensity calculated?
You divide research and development expenditure by the revenue of the same period.
Why does capitalization matter?
Capitalized development costs do not immediately burden the current result and can overstate the reported earnings quality.
Is a high ratio good?
Not automatically. What matters is whether the spending produces usable products and sustainable competitive advantages.
Related terms
Education only, not investment advice. Ranges and thresholds are didactic orientation values, not an official standard.