Companies earn their revenue from selling innovative products and services. That's one big reason investors from Kenneth Fisher to Michael Murphy have long touted the importance of following a company's research and development expenditures. But does this mean that greater R&D spending will lead to a greater stock market return? In the following video, Fool contributor Kevin Chen finds that there may be an upward trend between the two.
Analyzing IBM (IBM -0.82%), Baidu (BIDU 7.26%), Apple (AAPL 0.52%), Google (GOOGL 0.52%), and Nokia (NOK -0.82%), Kevin calculates the return on research capital, or RORC. You can calculate this number yourself by taking this year's gross profit and dividing it by last year's R&D expenditures.
After charting the RORC against each stocks' price change over the past few years, it becomes apparent that greater R&D expenditures may increase the stock's price return. However, there is one huge caveat. To learn more about the RORC and how to better think about your company's R&D investments, watch the video below.
