research and development costs (R&D costs) investment & finance definition

The costs that are incurred during the development and introduction of new products to market or during the improvement of existing products. Although R&D costs tend to penalize current profits, they eventually benefit the firm's future profits 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.