Price-To-Innovation-Adjusted Earnings

Posted in Finance, Accounting and Economics Terms, Total Reads: 625
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Definition: Price-To-Innovation-Adjusted Earnings

A method of measuring the company’s stock price with respect to its earnings after adjusting for its innovation i.e. Research and Development expenditure. 

Formula: It is computed by adding R&D Expense back to earnings and then calculating the P/E ratio for that company.

= (Price per share) / (Earnings per share + R&D per share)


Example:

For example, Company ABC spent 1000000$ on R&D. 

Let us assume that market price of share is 100$ and EPS is .8$ and profits being 2500000$

Means outstanding shares are : 

2500000/.8=3125000.


Now R&D per share is .32$

so Price-To-Innovation-Adjusted Earnings=100$/(.8+.32)=89.28

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