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    Patents value and the balance sheet

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    Companies that spend billions on research and hold hundreds of patents frequently do not show large investments in patents on their balance sheet.

    What would explain this?

    How would this affect your financial analysis of the company?

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    Solution Preview

    You are correct that many millions and billions are spent on research in pursuit of new drugs, for example. Most all of the research and development costs (R&D) are written off directly in the year in which they are incurred. Tax law allows a direct write-off, and the reason expensing R&D is appropriate is: in conducting pure research, there is never any guarantee that the research ...

    Solution Summary

    In a 265 word solution, the reasons are given for why there are generally not large asset amounts for patents on balance sheets.