Primary dimensions of change in the financial conditions of defense industry firms

Abstract

The Department of Defense and its budget has been subject to many changes over the last decade, The change in the Department of Defense's budget effects the financial condition of defense industry firms. These defense industries are critical to the Department of Defense, so their financial condition is of a vital concern. The purpose of this thesis was to analyze the financial data of defense industry firms to investigate whether change in financial condition within the defense industry, occurs along stable, identifiable dimensions. The research sample included fifty defense industry firms selected from the top one hundred Department of Defense contractors. Financial data of these firms covered the 1983 to 1992 time period. The analyses conducted involved examination of measures of change for thirty-six financial ratios. Factor analysis procedures were conducted to identify relationships that exist between these ratio changes. The results of the analyses provided evidence that change in financial condition occurs along six dimensions. These dimensions are independent of one another and represent aspects of a firm's financial condition. Specific ratios are identified to represent these dimensions. Collectively, these dimensions and the representative ratios provide a framework for conducting analysis of changes in financial condition.