When people talk about the Fortune 500, they’re referring to Fortune magazine’s annual ranking of the 500 largest private firms in the United States.
The annual revenues of companies are used to rank them by fiscal year.
Companies’ revenue was obtained from the public domain, hence the list contains both public and private enterprises.
It is a sign of success and status for a business to be included in the Fortune 500 list.
KEY POINTS
- Each year, the 500 largest firms in the United States are rated by their fiscal year’s total revenues and appear on the annual Fortune 500 list.
- Fortune magazine compiles and publishes the list.
- The organisations that make it onto the Fortune 500 list enjoy a certain level of prestige because of this.
- Since 1955, when it first appeared, The Fortune 500 has ranked the world’s 500 largest corporations.
Understanding the Fortune 500
Henry Robinson Luce established Fortune magazine in 1929.
After its debut the following year, it quickly rose to prominence as one of the most influential business magazines in the world.
The journal has expanded from its monthly print run to 16 issues per year and a sizable online following.
In 1955, the magazine ranked the best American corporations (both public and private).
Editor Edgar P. Smith conceived of the idea to produce this publication so that the size and influence of American corporations could be quantified at a period when the United States’ economy was “the envy of the world.”
The ranking was trimmed from its former moniker, the Fortune Industrial 500.
Companies that are incorporated in the United States, have operations in the United States, and file financial statements with government agencies are eligible to be included in the Fortune 500 survey.
Companies that are privately held are also included in this category. American companies that have been consolidated by other companies, private companies that don’t file financial statements with government agencies, overseas corporations, and companies that haven’t reported comprehensive financial statements for at least three quarters of the current fiscal year are not included.
Companies’ 10-K filings or comparable financial statements from 2020 onwards will be used to determine the order in which they are rated based on their total revenues for their individual fiscal years.
You can invest in a large number of Fortune 500 firms by purchasing an S&P 500 index fund, as around two-thirds of the Fortune 500 are included in the index.
Over its several editions, the list has profiled more than 1,800 different firms headquartered in the United States.
When compared to the original Fortune 500, there have been significant shifts.
Companies have been removed from the list as a result of mergers and acquisitions (M&A), changes in production output, and bankruptcy.
Multiple companies in a single industry may go down as a result of the recession. When the economy is doing well or when it is beginning to rebound from a string of bad years, it may be reflected in the Fortune 500.
Special Considerations
For the eighth year in a row, Walmart (WMT) topped the Fortune 500 list in 2020. A total of $524 billion was brought in by the business.
Amazon.com, Inc. (NASDAQ: AMZN) rose four spots to second place, with $280.5 billion in sales, in 2020.
Third place went to Exxon Mobil (XOM) with $265 billion in sales, followed by CVS Health (CVS) in fourth and Apple (AAPL) in fifth.
In 2020, these businesses topped the charts as the top three most lucrative in the world:
- with $81.4 billion in net income, there’s Berkshire Hathaway (BRK.A/BRK.B).
- With $55.2 billion in profits, Apple ranked second, and,
- Net income of $39.2 billion for Microsoft (MSFT).
Dow (DOW), Baker Hughes (BKR), and Uber (UBER) are all notable newbies to the list.
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History of Fortune 500
Edgar P. Smith, an assistant managing editor at Fortune, is credited with coming up with the concept for the list.
Smith’s notion caught on, and it eventually became the basis for the perennially well-received top 100.
Many well-known corporations were left off the inaugural Fortune 500 listings because they did not operate in the restricted manufacturing, mining, or energy industries.
A minimum of $49.7 million in annual revenue was required to be included on the list.
General Motors (GM), with annual revenues of $9.8 billion in 1955, topped the initial Fortune 500 list.
The year 1995 saw the greatest shift in the Fortune 500. The new list still featured manufacturers, miners, and energy producers, but it also included service providers for the first time.
Future iterations of the Fortune 500 were profoundly affected by the shift.
In that year, 291 of the 500 registrations were service businesses. Of the newly included service companies, three ranked among the top ten in the 2018 Fortune 500.
Walmart came in at number four, AT&T at number five, and Sears Roebuck at number nine.
If this shift hadn’t happened, Walmart never would have been number one for so long.
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