Government Contracting: Using Cost of Capital to Assess Profitability
NSIAD-91-163
Published: Aug 16, 1991. Publicly Released: Aug 16, 1991.
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Highlights
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Pursuant to a congressional request, GAO: (1) evaluated the effectiveness of the government's current method of assessing contractors' profitability levels; and (2) identified other methods that might better identify appropriate levels of defense contractors' profitability.
Recommendations
Matter for Congressional Consideration
| Matter | Status | Comments |
|---|---|---|
| Congress should enact legislation to require government contractors to annually report segment-level financial data to enable policymakers to measure the profitability and the cost of capital for assessing the financial health of the defense industry. | There has been no indication that Congress plans to take action on the recommendation. |
Recommendations for Executive Action
| Agency Affected | Recommendation | Status |
|---|---|---|
| Department of Defense | 1. The Secretary of Defense should develop procedures to add the cost-of-capital concept to its analytical framework for assessing the profitability levels of the defense industry over time. This implementation would require that the data, specific to the segment doing defense work in each company, be gathered on a recurring basis. |
DOD has stated that it will not take action on this recommendation.
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