E5-48. Interpreting Graphical Data to Analyze R&D and Market Capitalization

Consider the graphic below that depicts common-size R&D expense and the market-to-book ratio for several industries in 2018.

1. What explains the common-size R&D expense across the four industries?

2. What relation do we observe between common-size R&D expense and the market-to-book ratio? Explain

R&D and Market-to-Book ratio 5.0 16.0% 4.5 14.0% 4.0 12.0% 3.5 3.0 10.0% 2.5 8.0% 2.0 luu 6.0% 1.5 4.0% 1.0 2.0% 0.5 0.0 0.0% Software Pharmaceuticals Computer Automotive Hardware Median R&D / Revenue Median Market to Book