Research and Development (R&D): Overview, Models, and Metrics

What Is Research and Development (R&D)?

By Kristi Waterworth – Updated May 28, 2025 at 3:07 PM EST | Fact-checked by Frank Bass

Key Points

R&D is crucial for businesses to innovate and offer new products.
Look for companies with a high Return on Research Capital (RORC).
Examine Price-to-Research Ratio (PRR) to assess R&D investment effectiveness.
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Research and development (R&D) is the lifeblood of any business, whether it offers products, services, or a mix. Without R&D, the company would have no new offerings and wouldn't stay around very long. Read on to learn more about R&D and how it can be used to analyze an investment.

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Scientists working on research and development in a lab. — Image source: Getty Images.

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Why research and development matters to investors

In certain industries, R&D is absolutely everything, but it's important in every industry. Without new products and services, most companies can't survive. It's great to invent an industry-disrupting widget, but after a while, that widget is copied by everyone under the sun and just becomes the norm. It's hard for a company to remain competitive by resting on its laurels.

For investors looking for long-term gains, companies that play the long term and invest in R&D are essential. These aren't companies that are fly-by-night operations that may pop up and then go bankrupt in a few years. Instead, they last because they're constantly looking to the future and trying to stretch the definition of what's possible.

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About the Author

Kristi Waterworth has been a contributing real estate and financial expert at The Motley Fool, covering real estate, investing, and personal finance topics, since 2020. Kristi has been interviewed by various TV media outlets and podcasts for her real estate investing expertise – from residential real estate to digital real estate and everything in between. Kristi’s journalist career spans over 25 years, and she has written about real estate investing, homeownership, and home construction specifically for the last decade. She was also previously a licensed Realtor and general building contractor before the Great Recession and housing market collapse. She holds a bachelor’s degree in American history from Columbia College in Missouri.

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