Basic dimensions of financial condition within the defense industry

Abstract

In the current economic climate of fiscally constrained resources, the Department of Defense (DoD) has become extremely sensitive to the ways in which it spends money in support of its mission of providing national security. Before awarding contracts to defense industry firms, the DoD routinely performs financial analysis on these defense contractors in order to assess their financial condition. The primary purpose of this thesis was to analyze financial data from a sample of defense industry firms in order to determine the basic dimensions of financial condition in the defense industry. A related objective was to compare these results with previous studies. This analysis is particularly relevant due to the recent and numerous changes, particularly mergers, that have reshaped the economic landscape for defense industry firms during the mid-1990s. The research covered fifty of the top one-hundred defense contractors. Fifty-one different financial ratios for these companies were calculated and analyzed. Factor analysis was the primary statistical method employed. The analysis concluded that were nine distinct dimensions of financial condition within the defense industry. Future financial analyses of the defense industry should cover these distinct dimensions of financial condition.