The Defense Budget and Defense Industry Finance

Abstract

The defense sector's fundamentals in terms of operating margin and cash flow return on investment (CFROI) are stronger today than at any point in the past two decades due to better cash flow management, operating efficiencies, and record US defense spending. However, the economic and business environment for the defense sector moving forward is likely to be more difficult because of the Federal budget deficit and the government's non-defense spending requirements. Likely changes in spending priorities have the potential to change the industry significantly. Assessing the vulnerability of the defense sector to potential market changes both as a whole and within the various segments it comprises is of the outmost importance.