EVA & Amortization of R&D

Performance Measurement
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asad shah, Pakistan

EVA & Amortization of R&D

The amortization of R&D on straight line basis does not justify the concept of equal opportunity through out the life of amortization and it seems to be more biased towards the earlier years of product. We know that companies get maximum benefits from R&D in the earlier years and with the passage of time the advantage starts diminishing as the competitors or company itself can come up with the new R&D. Therefore in the later years of a product the company bears the R&D presence in its books but the real advantage does not hold good in these years. Therefore I think that the amortization should be larger in the earlier years of R&D.

  Ritesh, India
 

Other view

As the name suggests, it's R&D. R&D in lay man terms means hit and trial with the technology. Even a hit rate of single digit % would be considered as good as R&D outcomes are known to give benefits for longer durations. But on the other hand you would constantly be investing in R&D. 90% of the investment may go down the drain but 10% may bear fruit. So to take care of both scenarios, a SLM seems appropriate unless we have some mechanism to distinguish R&D investments as fruitful and not so fruitful.

 

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Performance Measurement
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