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Enhancing Retail Performance through R&D Capitalization Strategies

Explore the impact of capitalizing R&D on retail net earnings and return on equity. Compare 5-year and 3-year depreciation models to forecast enterprise profit and net equity assets. Discover how different accounting treatments influence financial outcomes. Access industry insights from top financial websites.

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Enhancing Retail Performance through R&D Capitalization Strategies

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  1. Specialty Retail By Leah Constan-Tatos

  2. Expensing R&D

  3. Capitalizing R&D

  4. Effect on RNEA and REI under the two accounting treatments • Without capitalizing R&D the RNEA and REI increase at a quicker rate • Capitalization of R&D results in a more gradual and slower changing RNEA and REI • NEA increases at a gradual rate here (dependent on R&D amortization)

  5. Different forecasts for 2020… • REI will change as there are no more expenses related to R&D • However, amortization expense will continue under the second method • Because enterprise income and NEA is different RNEA is different too

  6. QUESTION 2Forecasts of EPAT and NEA under both depreciation methods

  7. 5 Year Depreciation

  8. 3 Year Depreciation

  9. Verdict? Under the five year depreciation method the firm is more profitable (EPAT 2017 5 yr > EPAT 2017 3 yr)

  10. Options • An increase in EPAT may encourage holders to exercise their options • 3 yr. depreciation model is more favorable

  11. Websites Accessed • IBIS World http://clients1.ibisworld.com.proxy.library.nd.edu/reports/us/industry/default.aspx?entid=1098 • Bloomberg - Office Depot Form 10-K, 2013 http://investing.businessweek.com/research/stocks/financials/secfilings.asp?ticker=ODP • Yahoo Finance http://finance.yahoo.com/q/in?s=ODP+Industry

  12. S&P Capital IQ http://www.netadvantage.standardandpoors.com.proxy.library.nd.edu/NASApp/NetAdvantage/cp/companyValuation.do • Nasdaqhttp://money.cnn.com/quote/forecast/forecast.html?symb=ODP • Kiplingerhttp://www.kiplinger.com/tool/business/T019-S000-kiplinger-s-economic-outlooks/ • Valuelinehttp://www.valueline.com/

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