Price-to-innovation-adjusted earnings is a variation of the price-to-earnings ratio that takes a company's level of spending on research and development into account. Price-to-innovation-adjusted earnings is calculated by adding any expenditure on R&D back into earnings and then calculating the PE ratio for that company.
Accounting standards require that R&D costs are categorized as expenses, which can diminish the book value of innovative companies in industries such as software development and biotech. R&D expenditures do not necessarily guarantee future innovative success, but R&D spending is regarded as a crucial part of innovation and technological advancement.
The price-to-innovation-adjusted earnings calculation is extremely useful when evaluating company performance in industries such as software development, pharmaceuticals, and computers. In fact, some technology companies reinvest a significant portion of profits back into R&D, because they consider it as an investment in their continued growth. Heavy expenditures on R&D shows that a company is willing to take risks to further its growth.
Note: R&D has a fallback to previous period during preliminary. If NA after the fallback, or NA for TTM & Q with complete data then fallback to the closest annual
Formula
PEInclRD = Price / (EPSExclXor + RandDPS)
If negative EPS it returns NA
These ratios combine line-item filing data with stock prices. The price used in the calculation depends on the period of the financials. The latest close price is used for ratios that involve the latest financials, like the most recent quarter or the latest trailing twelve fiscal months (TTM). For ratios that involve older financials, like the quarter one quarter ago, or the TTM one year ago, the price used for the calculation is the closing price from the first trading day following the period statement's announcement date.
Quarterly values from Income & Cashflow statements are annualized to make the resulting factor more readily comparable with 12-month factors. The annualization is done by multiplying the quarterly figures by approximately 4 (depends on the actual number of days in the period).
You can either use a prebuilt ratio or use the function to define your own.
RatioName(offset,type)
offset: 0-24 (for interim) 0-19 (for annual)
type: QTR (for interim), ANN (for annual), TTM (for trailing twelve months)
For example to screen for stocks whose P/E today is less than their P/E from their previous fiscal 4 quarters enter:
PEExclXor(0,TTM) < PEExclXor(4,TTM)
The above can also be done using prebuilt ratios:
PEExclXorTTM < PEExclXorPTM
Below are the available pre-built ratios with the corresponding parameters for the formula. Please note that availability varies by factor.
|
Period |
Description |
Price |
Line Item |
|
Q |
Recent Quarter |
Close(0) |
(0, QTR) |
|
PQ |
Prior Quarter |
AD+1 * |
(1, QTR) |
|
PYQ |
Prior Year Quarter |
AD+1 * |
(4, QTR) |
|
TTM |
Trailing Twelve Months |
Close(0) |
(0, TTM) |
|
PTM |
Prior TTM |
AD+1 * |
(4, TTM) ** |
|
A |
Recent Annual |
Close(0) |
(0, ANN) |
|
PY |
Prior Year |
AD+1 * |
(1, ANN) |
* AD+1: uses the closing price from the first trading day following the period statement's announcement date. For TTM, the AD is that of the latest quarter which is included in the TTM.
** PTM uses interim periods, so the offset is 4, not 1.
Click here for the Line-Item Reference Spreadsheet.