What’s Your Company’s RQ™ (Research Quotient)?

Research and Development (R&D) expenditure is the amount of money a company spends on developing new products and services each year.  Academic business researchers have intensively investigated the relationship between a company’s R&D and its market value, and have searched for ways to derive a firm’s optimal R&D spending.  A recent innovation in the analysis and measurement of a firm’s R&D has been the development of the concept of Research Quotient (RQ).

A company’s Research Quotient is the percentage increase in the company’s revenue from a 1% increase in its R&D. RQ is a measure of a firm’s ability to generate revenue from its R&D expenditures.  RQ is calculated from a formula that combines a company’s measure of capital, labor and R&D. For more details concerning RQ calculation, click on Manuals and Overviews from the WRDS Research Quotient database.

RQ can be used:

  • To Link R&D spending to firm growth
  • Link R&D spending to market value
  • Derive a firm’s optimal R&D spending

The WRDS RQ database includes RQ measures for all companies in the COMPUSTAT database that report R&D expenditures. The data covers 1972 to 2010 and is updated annually.  The file allows searching by 4 digit SIC and by GV Key (COMPUSTAT’s unique company identifier).

Table 1 is an example of the output showing some of the default variables.

TableOne

  • “Raw RQ” is the “Research Quotient” that identifies the ability of a firm to generate revenue from its R&D expenditures. The higher the RQ the greater the revenue generated.
  • “RSTAR” is a calculation of optimal R&D expenditure.
  • “RD Ratio” is the ratio of R&D expenditure to Revenue.

In Table 2, for clarification, I have supplied tickers and names of companies together with a measure of “RQ” that I calculated from the “Raw RQ” supplied by WRDS. This RQ is analogous to the human IQ measure with a mean of 100 and a standard deviation of 15. An RQ with a mean of 100 is often used by academic writers as a way of making the RQ measure more intuitive.

Table 2 ranks the first 20 companies in the U.S. by their RQ in 2010.

Table2improved

There are more than 260 four digit SIC codes represented in the 2010 files, but only 10 codes have more than 35 companies. Table 3 collapses the codes into 2 digits, and ranks the average RQ of the largest 15 industry groups.

Table3Formatted

About 78% of the companies in the 2010 file were based in the U.S.  Figure 1 graphs the countries with 3 or more companies in 2010 by average R&D expenditures and average RQ.

Figure1Formatted

The principal developer of the RQ concept is Anne Marie Knott, Professor of Business at Washington University, St. Louis. In a 2012 article in Harvard Business Review, she estimateds that if the 20 largest US firms had optimized their R&D expenditure in 2010, they would increase their aggregate market capitalization by $1 trillion. (Knott, Anne Marie. “The Trillion-Dollar R&D Fix.” Harvard Business Review (90:5) 2012, pp. 76-82.) This article can be accessed using Business Source Complete.

Capital Cube: Not your Father’s Stock Screener.

Financial databases from Bloomberg to Yahoo Finance can screen equities based on a combination of standard financial variables and ratios, analysts’ estimates, industry and location. But if you want to identify companies with, “Aggressive Accounting Practices”, a high “Fundamental Analysis” score or possible “Sandbagging” (understated or hidden earnings) you will need a different type of stock screener. Try Capital Cube. Capital Cube Menu   As can be seen from the Capital Cube menu, the screening options are unusual. Capital Cube creates unique variables by taking the raw financial data from individual companies and comparing the data with averages from a group of peers. For example, a company is tagged as employing “Aggressive Accounting” when “…the company’s net income margin is higher than its peer median while the percentage of accruals is lower than peer median”. Capital Cube states that this situation is usually indicative of a company with an aggressive accounting policy. Capital Cube computes a daily “Fundamental Analysis” score for each company in its database. “The Fundamental Analysis score is calculated by comparing the company’s performance relative to peer companies across multiple attributes like relative valuation, valuation drivers, operations diagnostic, etc.”

Capital Cube graph

 

Capital Cube uses fundamental data from the FactSet financial database. It includes more than 45,000 companies worldwide.

For additional information on equities screening see the Business FAQ:

 How can I screen for equities using criteria of my choice?

For information on FactSet see the Business FAQ:

Can I access FactSet through Lippincott Library?

Corporate Affiliations and ReferenceUSA’s “Way Back” Machines

Web-based company directories have many advantages over their print counterparts, but in one area they frequently fall short; they rarely include historical information. Financial databases of public companies such as Bloomberg, Thomson One, and S&P COMPUSTAT will include extensive historical financial data, but if you are looking for a private company’s address, product line, or executive names as of 1995, you would do better with a 20 year run of a printed directory than with its current online counterpart.  This pattern is changing as information vendors become aware of the market for historical company data. Two examples of corporate directory archives are the historical research sections of Corporate Affiliations and ReferenceUSA.

Corporate Affiliations shows the corporate structure of more than 1 million public and private companies world-wide with subsidiary listings and corporate linkage.  For more information please see:  Private Company Research Part 2:  Corporate Affiliations. The Historical Research module of the database gives company addresses, products, SIC numbers, names of executives and directors, and key financial data for every year from 1993 to date. As the menu below indicates, you can search by company name, or screen by one or more variables. A company (ENRON, for example) does not have to be in business currently to be included in the historical file. To reach the Historical Search menu, follow this path from the main Corporate Affiliations’ menu:

Subscriber Tools => Historical Search

Corp Affiliations History First Menu

 

 

 

 

The record for Motorola Solutions, Inc. shows how the data is presented for a single company.  Clicking on the date tabs (‘1993’ etc.) will include the data for that year in the output.

Corp Affiliations Historical 1

 

The historical treatment of changes in SICs and product descriptions will include as many as 14 SIC numbers and descriptions for each company.

Corrp Ailliations Historical 2

 

 

 

 

 

The company record for all years and all variables can be downloaded as a text .CSV format which EXCEL will read.

Here is the result of a screen for companies in Philadelphia in 1993.

Corp affiliation Phila

 

The WEB display of the results is only a small fraction of the EXCEL record, which will give details for all variables (SIC, executive name, financial data, etc.). If the entire date range is requested, the downloaded record will list the companies alphabetically and then give variable details for each year.

However, there is a display limit of 1,000 records per search.  For example, a search for all companies in France with data for all years will produce a set of more than 1,000 records, but only 1,000 records from the set will be displayed.

ReferenceUSA’s current company directory contains 24 million U.S. company records plus records for an additional 1.5 million Canadian companies. The database’s historical businesses  module contains 151 million U.S. company records from 2003 through 2013.

To see the menu below:

U.S. Historical Business Database => Custom Search

REfUSA Main Menu

 

 

 

 

 

 

REFUSA beer list 2003

For example, a screen for breweries (Primary NAICS 312120)  in Pennsylvania in 2003 will produce this display:

 

Clicking on an individual company name will display a record giving the 2003 address, phone, sales volume, employee size, SIC/NAICS codes, as well as graphs of sales volume and number of employees for all available years between 2003 and 2013.

Downloading the records in  EXCEL and requesting “detail” will display all the variables available for the company for the given year. However, there is a limit of 250 records per download.  Requesting all records for a company for the range of years (2003 – 2013) will give a line of data for each year. In this way, you can determine if a company changes its name during the ten year period. For example, the company listed as “Pittsburgh Brewing”  from 2003-2008 is listed as “Iron City Brewing” between 2009 and 2012 and then as “Pittsburgh Brewing” again in 2013.

Companies can be mapped by number of locations, employee or sales size and displayed as “heat maps”. For example, the heat maps below show the doubling of  the number of breweries in Pennsylvania  between 2003 and 2013 (from 27 locations to 69).

CombinedHeat

The  availability of  the “back files” of ReferenceUSA and Corporate Affiliations are an important step in filling the gap in digital historical directory information.

For additional information on company histories see this posting: Don’t Know Much About “Corporate” History.

Also see our Research Guides:  Company Information and Business History Resources.

 

Put our Services to the Test

Welcome to Lippincott and the start of a new academic year!  We have a number of services to help make your life at Penn a lot easier.  Some of these services are described here.

 

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DOCUMENT DELIVERY. Available to MBAs,  PhD candidates and Faculty. Please send an email to docdel@wharton.upenn.edu to request articles and book chapters. Include the full citation for the fastest reply.

BUSINESS FAQ.  Your 24/7 librarian. Search by keyword to find resources on your topic such as financial ratios, consumer demographics, analyst reports and many more.

RESEARCH ASSISTANCE.  Email us, chat, call us at 215-898-5924 or contact a subject specialist on your topic. Ask for a Consultation for yourself or your team. We know where to find the academic resources that you need.

WHARTON LAB COMPUTERS AND PRINTERS.  Too crowded over at Wharton?  Come over to Lippincott and use the Wharton Lab Computers here.  These computers are reserved for Wharton students and have all the same programs and features that are available on Wharton computers.  Sign in using your Wharton account information.

GROUP STUDY ROOMS.  Have a team project or group presentation?  Reserve a room  for your meeting.  Some rooms are larger and can accomodate up to 12 people.

YABLON FINAYablon 1NCIAL RESOURCES LAB.  Bloomberg and Capital IQ are at your fingertips.  Log in with your Wharton account information.  First time you use Bloomberg, create your own account.  Librarians log you into Capital IQ.

 

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DATAPOINTS is the Lippincott Library’s blog. Follow us to learn tricks and tips about Bloomberg and many other Library databases.  Look for postings on new Library resources.  See this post, for example: Top 10 Resources for MBAs .

WORKSbloomberg120611_2_560HOPS.  Wednesdays are Bloomberg days.  Every week we provide Bloomberg training from 3:30 – 4:30 in the Yablon Financial Resources Lab.  You can register here: Business Workshops.   It’s hands-on so be sure to come a few minutes early to create your own Bloomberg account.

We also offer other workshops on Job Search, Company Information and Business Research Skills.  See the training schedule to find out what workshops are being offered. Registration is recommended.

RESEARCH TO GO.  Every Monday -Thursday we come to you.  Reference Librarians are available from 12:30 – 1:30 in Huntsman Hall 251.  Drop in and get fast answers to your job search or research questions.8-27-2014 2-49-11 PM

TEXT BOOKS.  Available for many Wharton courses at the Lippincott Reserve Desk.  Most can be checked out for three hours and used in the Library.

 

SUBJECT/COURSE GUIDES.  Subject Specialist have prepared Guides by subject area or course.  Use these to find resources for your projects and assignments.  Contact a Specialist for additional information.

FRANKLIN is the Library Catalog.  Use this to search for books, journals, videos and more.

MARK’S CAFE.  Food.  Drink.  Comfort.

Take advantage of the services available to you.  Hope to see you soon.

 

 

 

 

 

 

 

 

The Long and Short of Preqin’s Hedge Fund Analyst Database

Sometimes called “Mutual Funds for the Superrich” hedge funds are aggressively managed investment portfolios that attempt to generate high returns through the use of strategies such as leverage, long, short and derivative positions.

Preqin’s Hedge Fund Analyst database provides a comprehensive over view of the hedge fund industry. It includes information on hedge fund performance, profiles, managers, fund items and controls. You can search by individual firm (manager) fund, or create lists of firms or funds with the characteristics you want.

For example, to find the ten largest hedge fund managers ranked by assets under management (AUM) click on Hedge Funds in Preqin’s main menu, then on Fund Managers, and finally on League Tables. Continue reading

Moody’s Analytics: Bond Research In-Depth

Moody menuMoody’s Analytics is a comprehensive database of Moody’s rating methodologies, disclosures and performance metrics, as well as Moody’s ratings and descriptions of 170,000 organizations world-wide.

To retrieve Moody’s ratings of individual organizations, mouse over “Research & Ratings” from the main menu, choose “Look Up a Rating” and enter the organization’s name.

Moodys Menu detail

To find Moody’s ratings by category, mouse over “Research & Ratings” and screen on any combination of : Continue reading

GBI Research: Industry Intelligence in Pharma, Medical Technology, Power and More

GBI Research: Global Business Intelligence covers industry reports in Pharmaceuticals, Medical Technology, Oil & Gas, Chemicals, Power, Semiconductors, and Mining. Their “strategic intelligence reports” use primary and secondary research conducted by in-house analysts as well as research from propriety sources.

You can find reports a number of different ways.

  • Click on Report List from the top menu to get a listing of all published reports across all industries. Filter the results using the left-hand menu.
  • Enter keywords in the Search bar to search across the entire report portfolio.
  • Filter down using the Industry list on the home screen.

GBI 2

Reports cover market revenues, forecasts, and industry analysis as well as information like the competitive landscape, market trends and predictions, M&A deals, and key events. Most reports are globally focused, but many provide statistics by major countries or regions as well. Below is an example graph showing Offshore Drilling Expenditure Statistics, Europe, 2000–2016.

GBI Graph

To give you an idea of the types of reports covered, GBI Research highlights some of the GBI 1most viewed reports on the home screen. For example:

  • Pharmaceuticals: “Multiple Sclerosis Therapeutics to 2019 – Treatment Diversification”
  • Medical Technology: “Wound Closure Devices Market to 2019 – New Product Launches”
  • Oil & Gas: “Offshore Drilling Industry in Europe to 2016”

Continue reading

Library Database Access for Penn Alumni

Good news for Penn Alumni – you now have access several Penn Library databases urlremotely. Take a look at the Alumni Services page for a complete listing of available databases as well as for information on how to get an Alumni Pennkey.

Here is a brief introduction to the business-related electronic resources available to alumni

Business Source Alumni

EBSCO Business Source Alumni Edition is the alumni version of a journal article database you may have used as a Wharton student – Business Source Complete. It is designed to meet the research needs of post-college professionals by providing access to more than 1,300 full-text business magazines (such as Bloomberg Businessweek and WWD: Women’s Wear Daily) as well as peer-reviewed journals. Publications cover almost every major area of business, and include specialized reports such as country economic reports, company profiles, and industry reports. To find out which publications are covered in the database, click on the Publications tab at the top of the screen.

In addition to articles, Business Source Alumni is a good place to find global industry reports. marketlineThe subscription includes reports from the firm Datamonitor (MarketLine).  MarketLine reports cover 26 sectors and a number of major economies. The industry profiles are framed within Porter’s Five Forces Analysis, and are a good starting point for gaining a top-level perspective on the sector. Each Industry profile is approximately 35 pages long and includes: Continue reading

Panjiva Panegyric — Resources for Supplier Information

PanjivaPanjiva is a database of information from 2.5 million product suppliers worldwide. The data comes from U.S Customs and Border Protection (bill of lading shipment records), credit information providers, compliance organizations, trade associations, and more. Its supplier profiles include a company overview, shipment statistics, detailed list of buyers, breakdown of products, and a Panjiva supplier “rating”. Search by product (e.g. snuggie), supplier/ buyer company names (e.g. Microsoft, Ralph Lauren, etc.), and industries (e.g. electronics).

Here is the first page of a search for suppliers of Microsoft.

panjiva 99

Continue reading

Show and Fintel – U.S. Industry Metrics

In last week’s post we covered micro-industry research in terms of locating industry codes and creating lists of companies in a specific industry. This post takes industry research one step further by highlighting our newest database for industry ratios and statistics. FINTEL is a database of industry metrics for more than 2,500 industries as classified by NAICS (North American Industry Code System).

For example, a search for Aircraft Manufacturing (NAICS code 336411) will display an Industry Profile giving the industry size (112 companies), industry return on investment, and the loan failure rate. In addition, the profile includes very current industry news stories, some only hours old.

Fintel one

Report options include 1-year and 4-year reports subdivided by size of company (small, medium, large) with the ability to further segment the data by region (state or county), net sales, total assets, employee size, ownership type, and age of firm. The reports include income statements, balance sheets and financial ratios. Reports can be exported as a spreadsheet or PDF. Here is a portion of the financial ratio report for the U.S. Aircraft Manufacturing Industry.

Fintel 2a

This is only one of the databases available for this type of research. For additional sources for industry ratios, see our FAQ.