Due Day 3, Thursday
The pharmaceutical industry spends billions of dollars each year on research and development. Rather than capitalize these R&D expenditures as intangible assets, companies are required to charge them to expense in the year incurred. Perform a key word search of pharmaceutical companies using the search engine of your choice. Select 2 of these companies and obtain their 10K report by using the SECs EDGAR system or going directly to the websites of the company you choose. For each company selected, determine:
Please present the dollar amount for each company’s sales, total R&D costs, total operating expenses including R&D costs, and operating income, and provide the supporting calculations for your %s.
R&D would typically be presented as a separate line item under operating expenses or alongside it. To calculate R&D as a % of net sales is not difficult, since both items would be clearly presented on the income statement. With operating expense data, care should be exercised on whether total operating expenses already contains R&D costs or are operating expenses presented separately from R&D costs. Technically the R&D costs as a % of total operating expenses should be R&D divided by total operating expenses which include R&D, so we can see how much of the company’s on-going, recurrent expenses are made up of R&D. Operating income should be presented as a separate line item on the income statement. If not, subtract cost of sales and operating expenses (including R&D) from sales and you get operating income.