Financial ratio patterns in the U.S. defense industry

Abstract

There have been dramatic political and economic changes affecting the United States defense industry during the past decade (1983-1992). The purpose of this research was to determine the effect of these changes on financial ratio patterns of defense industry firms. The research sample included thirty-eight defense industry firms selected from the top hundred Department of Defense contractors. Fifteen financial ratios, representing four broad categories, were examined for sample firms for a ten year period. Statistical and visual analyses were conducted for each ratio in order to investigate industry financial ratio patterns. The analyses provided significant evidence for the following broad conclusions concerning financial ratio patterns during the ten year period: profitability had declined and risk increased in the defense industry; recent years have shown increasing dispersion (less uniformity) in financial condition across defense industry firms; there was some indication that ratios in the most recent years have become more stable suggesting that the period of greatest turmoil for the industry may be passing.