research and development costs (R&D costs) business definition

The costs that are incurred during the development and introduction of new products to the market, or during the improvement of existing products. Although R&D costs tend to penalize current profits, they should eventually benefit the firm when new products developed as a result of the research become profitable themselves. Many analysts regard a high proportion of sales revenue devoted to R&D as a positive sign relative to a firm's profit potential and future stock price.