Companies must invest in their own business to grow over time. DCF models often underestimate the necessary investment to achieve a growth. Geoffrey VanderPal investigated the impact of R&D on 103 companies from different fields through 1980-2013. He concluded that an intense positive correlation exists between R&D spending, profitability, and market value [1]. It is important that analysts account for these findings in their models. Failure to link revenue growth and R&D spending will result in unrealistic growth projections that will propagate throughout the calculations.
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Potential Articles to Tackle (2/1/2017) Assignment:
- Weighted Average Cost of Capital (Weighted average cost of capital)
- Cash Conversion Cycle (Cash conversion cycle)
- Latin American Capital Markets
- ^ VanderPal, G. (2015). "Impact of R&D Expenses and Corporate Financial Performance". Journal of Accounting and Finance. 15: 135–149.