R&D spending

There is an interesting article inUSA Today concerning recent cutbacks in R&D spending by various companies. The article states:

Spending on R&D by companies in the benchmark S&P 500 index has grown 3.3% over the past four quarters, well below the 11.6% growth in revenue during the same period, S&P says.

The article also cites a recent study by the consulting firm Booz Allen Hamilton that discusses the link between current R&D spending and future profitability.

A new study by consultant Booz Allen Hamilton encapsulates these fears. It found that big R&D spenders don't get returns on their outsized investments and that R&D spending has no effect on growth, profitability or shareholder return. R&D is "a roll of the dice of what you will get back," says Barry Jaruzelski, vice president of Booz Allen and co-author of the study that looked at 1,000 companies going back six years.

I always enjoy the discussion among students on the question of expensing versus capitalization of R&D. They recognize the link to future profits, but also understand the accounting reason for expensing. I try to get them to some middleground or why can't we as accountants be comfortable with not being able to exactly measure the the future linkage.