R&D Budgets Rebounding
For all S&P reporting companies through May 12, 2010, the median entity has surprisingly maintained its R&D budget.
For the latest reporting quarter, the median S&P firm spent 4.9% of total sales on R&D, compared to the March 2005 quarter of 4.2%. This is up from March 2009 quarter of 3.9%. Total estimated spending on R&D over this period rose quarterly from $34 bn. to $39.4 bn. These numbers are approximate as not all companies report R&D each quarter, as picked up by S&P Compustat services.
The data in the chart is fairly accurate as when we look at annual data for all S&P reporting companies, total R&D expenditures rose from $ 121.4 bn. to $164.7 bn.
CT Capital looks at research spending in relation to revenues, unit growth, cash flows and cost of sales when analyzing free cash flow. A percentage of any overspending in R&D is added to free cash flow. Over the past year, enterprises have, in general, been judicious in their R&P spending as they have in managing their other corporate assets. They continue to be optimistic regarding the potential of their R&D spending.
Reporting firms’ R&D (as opposed to capital spending budgets), have, in general, been maintained within historical standards.
Kenneth Hackel, C.F.A.
