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

Price / (EPSExclXor + RandDPS)
If negative returns NA

 

Availability

These ratios combine data from from line item filings and factors that use prices (click here for the line-item reference). Which price is used in the calculation depends on the period. 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 year ago, or the TTM one year ago, the price used for the calculation is the average price during the following quarter.

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.

Function

RatioName(offset,type)
offset: 0-25 (for interim) 0-10 (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

Prebuilt Ratios

Prebuilt ratios are available for these periods:

Period	Description	Price	Line Item
Q	Recent Quarter	Close(0)	(0, QTR)
PQ	Prior Quarter	Avg nextQ	(1, QTR)
PYQ	Prior Year Quarter	Avg nextQ	(4, QTR)
TTM	Trailing Twelve Months	Close(0)	(0, TTM)
PTM	Prior TTM	Avg nextQ	(4, TTM) **
A	Recent Annual	Avg nextQ	(0, ANN)
PY	Prior Year	Avg nextQ	(1, ANN)

** PTM offset is 4 , not 1, since it uses interim periods