Using Financial Analysis to Compare Defense Budgets

Many in the United States are unaware of, let alone see issues in the programming, use and return of the defense budget. This paper takes many commonly accepted financial analysis frameworks and applies them to defense budgets to address those topics with both qualitative and quantitative approaches. Assurances about the US spending far more than anyone else or more than any basket of countries combined on defense are not what they appear, and more spending is not the answer. This paper also proposes a defense-specific framework for measuring return on equity and value. Last, investment theories provide a discussion on what the future may bring. These analyses are all done for the United States and the People’s Republic of China using open-source data. Those in the United States and the West can use these findings from a financial lens to view the status quo differently, especially as the findings are not very favorable for the United States and its allies.