Declining defense budgets have prompted concern about the financial health of the prime contractors for military aircraft. In this report, the authors examine financial indicators for the seven contractors active in the 1980s. The financial data come from publicly available sources and cover the past 20-30 years, ending in 1992. The authors find that firms that are less dependent on the U.S. government have higher sales, higher profitability, lower debt/capital ratios, and higher spending for research and development relative to sales. During earlier downturns in defense spending, declining shareholder equity, debt/sales ratios over 20 percent, and debt/capital ratios over 50 percent signaled future financial weakness.
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