Impact of research & development expenditure of Sri Lankan large scale enterprises with special emphasis on the financial indicators

Abstract

The respective research is conducted, in order to identify the impact or influence of expensed R & D as well as capitalized R & D on the financial performance of the firm, in accordance with the International Financial Reporting Standards. Its necessitate that the R & D expenditures must be accounted in the comprehensive income statement, and none of the intangible assets are considered from the R & D research phases must be accounted as an asset in the statement of financial position. For the data collection, the total samples size contains of 105 firms with 525 observations, from the audited financial statements of the public listed companies at Colombo Stock Exchange, which are engaged with the R & D activities over the period of last five financial years between 2010/2011 and 2014/2015. Those samples are adopted with the random and stratified sampling techniques as well as the multivariate quantitative technique is selected as the research technique to measure the financial performance of the firm by using the selected accounting based indicators. Such as; Interest cover ratio (ICR), Price-earnings ratio (PER), Capital structure gearing ratio (CSGR), Return on invested capital employed (ROICE), Earnings per share stock (EPSS), Dividend yield ratio (DYR), Return on assets ratio (ROAR), Asset turnover ratio (ATR) and Dividend cover ratio (DCR). The results could be concluded as; the expensed R & D positively associates with DCR, negatively associates with EPSS, positively associates with CSGR with does not have any substantial impact and negatively associates with ROAR, ROICE, DYR and PER. On the other hand the capitalised R & D has substantial negative association on ROAR, ROICE and EPSS; meanwhile it’s positively associates with CSGR but does not have any substantial impact and negatively associates with DYR, DCR and PER.