The on-going defense drawdown has left leaders in both Government and industry concerned over the survival of the U.S. defense industrial base. The purpose of this thesis is to explore whether or not such conoern is warranted, given the various strategic efforts undertaken by the management of U.S. defense firms to ensure that their companies remain competitive, profitable, and financially viable despite shrinking defense budgets. Using eight different financial ratios as pertormance measures of solvency, efficiency, and profitability, this thesis examines the financial viability of 28 defense contractors from 1986 through 1994. Graphical and statistical analytical techniques are used to: identty ratio trends; measure defense industry performance compared to U.S. manufacturing industry averages; and identify the relationship between defense firms' strategic commitment to/dependence on defense business and their financial viability over the period of the defense drawdown. The thesis concludes that the solvency ratio trends show steadily to improving conditions, while the trends for efficiency and profitability ratios are somewhat mixed. Analysis also shows that, compared to the U.S. manufacturing industry at large, the defense industry was less solvent, less efficient, and more profitable over the period of the drawdown. However, the more defense-dependent firms were generally more solvent, more efficient, and less profitable than defense firms whose strategies indicated less dependence on defense business.
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