The utility of corporate-style balance sheets for DoD managers

Abstract

The purpose of this research was to analyze the utility of audited financial statements within the Department of Defense (DOD). The authors compared the balance sheet between the commercial and government sectors. First, they examined the differences in the elements of the balance sheets based on the different applicable accounting standards. Second, given those differences, the authors evaluated whether standard industry financial ratios based on balance sheet elements are comparable in government balance sheets. The authors recommended adjustments to ratio formulas where applicable. Third, they evaluated whether corporate ratios are useful when examining government balance sheets. The primary objective of the project was to assess the utility of the balance sheet for DOD users. Because the users of government financial statements need different information than users of corporate statements, the utility naturally varies. Common corporate ratios, with some modification, may provide utility to users of government statements, and federal-specific ratios may be useful. The utility varies depending on the level of aggregation of the data.