The impact of research and development expenditure on financial performance: evidence from Sri Lanka large scale enterprises

The intense competitive pressure on business firms has increased the importance of Research and Development (R&D) activities for them to be able to survive in the market place. The purpose of this research is to identify the impact of expensed and capitalized R&D on the financial performance of a firm — a sample of 105 firms that were selected from publicly listed companies that implement R&D activities. The random and stratified sampling techniques were adopted, and the multivariate quantitative technique was selected to analyze their performance using several key financial indicators. The results revealed that expensed R&D positively associates with Dividend Cover Ratio (DCR), negatively associates with Earnings Per Share (EPS) with a substantial impact. The capitalized R&D has a strong negative association with Return On Assets Ratio (ROAR), Return On Capital Employed (ROCE) and EPS. The expensed and capitalized R&D showed the insubstantial positive or negative impact on other financial indicators. These findings contribute to the efficient policy decisions of the firms.