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 0.06%), Baidu (BIDU -0.56%), Apple (AAPL -1.22%), Google (GOOGL -1.23%), and Nokia (NOK 2.03%), 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.
