Research is an investment, not an expense

The financial tools for evaluating R&D investments have evolved well beyond basic discounted cash flow models. Better tools have been developed to value intellectual capital, including the quantitative assessment of the value added by R&D. The dissection of the elements of risk, and the application of real options theory are new features of the R&D landscape. Financing vehicles have also changed with a surge of venture capital and private equity funds. The analyst's toolbox has been enhanced by electronic spreadsheets, on-line databases, Monte Carlo software, the Internet, and the ubiquitous personal computer.