General Dynamics (GD)
General Dynamics splits between government-funded backlog and a Gulfstream jet cycle that can move independently of defence spending.
Educational analysis for professional use. This profile is not investment advice or a recommendation to buy or sell any security, and it is not personalised.
Snapshot
Business Overview
General Dynamics runs two businesses under one ticker: defence combat systems and nuclear submarines funded by government backlog, and Gulfstream business jets sold into a commercial cycle that does not track the defence budget. FY2025 revenue was $52,550M, of which government work supplied 76% (68% US, 8% non-US) and commercial aviation the remaining 24%, mostly Gulfstream and Jet Aviation inside the Aerospace segment (25% of consolidated revenue). Group backlog reached $118,046M. The defence portion alone grew 36% year on year, from $70.9B to $96.2B at 31 December 2025. Market capitalisation was roughly $93.5B as of 10 June 2026 (270.39M shares × $345.81).
Book-to-bill, orders divided by revenue on GD's own definition, ran 1.5-to-1 company-wide and 1.6-to-1 on defence segments; all four segments cleared 1-to-1 in FY2025. Submarine revenue was $12,608M, 24% of sales, just under the 25% mark this site treats as the point where a single programme starts to dominate group risk. Segment operating margin ranged from Marine's 7.0% to Combat Systems' 14.4%, with Aerospace at 13.3% and Technologies at 9.5%; the consolidated figure was 10.2%.
US government revenue contract mix was 51% fixed-price, 44% cost-reimbursement and 5% time-and-materials. The contract-type guide pairs this filed split with NOC's ~50% fixed-price language to explain margin dispersion across primes.
How the Numbers Read
FY2025 free cash flow was $3,959M against net earnings of $4,210M: 94% conversion, above the 90% level this site treats as strong. Operating cash flow ran higher still, $5.1B, or 122% of net earnings before capex; the gap between the two reflects capex timing. The FCF conversion guide uses GD's own proxy disclosure, FCF weighted at 25% of annual incentive pay, as the reason primes' management teams watch this figure as closely as revenue.
The backlog guide uses GD's 1.6x defence book-to-bill alongside the $70.9B-to-$96.2B defence backlog build as the arithmetic proof that orders above revenue add to funded backlog.
GD's 10-K defines backlog as firm contracts, funded and unfunded. Options and IDIQ (indefinite-delivery, indefinite-quantity) ceilings sit outside that figure, in a separate estimated potential contract value. That makes GD's $118B backlog non-comparable to L3Harris's $38.7B contractual backlog or BAE's £83.6B Group order backlog without checking each filer's definition first.
Valuation Framework
GD's two halves need judging separately rather than blended into one number: defence and government work at 76% of revenue, Gulfstream at the other 25%. The defence side turns on backlog conversion, the 1.6x book-to-bill and submarine programme visibility; the Aerospace side turns on the business-jet cycle, where segment operating margin runs at 13.3%.
Submarine revenue at 24% of consolidated sales is a concentration teaching case, second only to LMT's F-35 programme at 27% of that company's sales. Columbia-class and Virginia-class build schedules drive both Marine segment margin (7.0%) and capital intensity, even in a year when Combat Systems earns 14.4%.
What to Watch in the Financials
Defence backlog and book-to-bill. Defence backlog reached $96.2B on a 1.6-to-1 book-to-bill, up 36% year on year, filed evidence that order intake is running ahead of revenue recognition.
Submarine revenue share. Submarine work held at 24% of sales ($12,608M), just under the 25% concentration line; one strong Columbia-class year would push it through. Columbia-class execution and Navy funding set the pace for Marine's outlook.
Marine vs Combat Systems margins. Marine ran at 7.0% segment margin against Combat Systems' 14.4%, the widest spread in the portfolio. Shipyard capacity and labour availability explain part of the gap. Cost-type contract mix on Marine programmes explains the rest, keeping the segment thin even as revenue grows.
Gulfstream/Aerospace cycle. Aerospace, mostly Gulfstream, is 25% of revenue at a 13.3% segment operating margin. A business-jet downturn would offset defence backlog momentum in consolidated earnings.
FCF versus operating cash. Operating cash flow ran at 122% of earnings before capex; free cash flow after capex was 94%. Capex spikes on submarine programmes or Gulfstream product transitions are the usual explanation for the gap.
Key Risks
Submarine programme concentration. Submarine work is 24% of sales, so yard capacity constraints or Navy budget reprioritisation would hit close to a quarter of group revenue at once.
Marine segment margin. Marine's 7.0% segment operating margin is already the portfolio floor. Cost growth on fixed-price shipbuilding phases, or schedule slips on the Columbia and Virginia boats, would compress returns that have little room left to give.
Commercial aerospace exposure. Commercial revenue, mostly Gulfstream, is 24% of the group. A business-jet downcycle would dilute defence backlog growth at the consolidated earnings line, since the two segments do not move together.
Fixed-price contract risk. Fixed-price terms cover 51% of US government revenue. Combat Systems benefits when execution stays clean, but Marine and Technologies carry more cost-growth exposure on development-heavy contracts.
Funded backlog and FCF conversion are the inputs. This primer takes them to a ten-year cash-flow value and an FCF yield you can screen.
The Excel model is the primer's two archetype builds live across 11 sheets: a ten-year, backlog-driven free-cash-flow DCF with a Gordon terminal. Change the book-to-bill, the FCF conversion ratio or the WACC and the value per share moves; the backlog, conversion-bridge and concentration sheets update alongside it.