Criteria for the Fortune 500
The Fortune 500 is an annual ranking of U.S. companies by Fortune magazine. The ranking is based solely on gross revenues. The list is filled with iconic American brands, and if those companies formed a country, it would be an economic powerhouse. However, that doesn't mean the Fortune 500 is always an accurate gauge of the economy's performance.
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Who's on the List
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According to Fortune, the 500 companies with the highest total revenues in their respective fiscal years make the cut. The companies must be based in the U.S. and must file financial statements with a government agency. While most Fortune 500 companies are publicly traded, the list includes some private companies that file financial reports with the government.
History
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Like the economy, the Fortune 500 changes over time. Most people would recognize the names on the original list published in 1955. But each year, companies are added and dropped from the Fortune 500. More importantly, the list provides a snapshot of how the economy is evolving. Past trends have included the addition of more financial services and technology firms--a reflection of the shift away from a manufacturing-based economy.
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Function
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A company's bottom line is the profit or loss it generates, not its gross revenues. A company can be near the top of the Fortune 500 and still have lost a significant amount of money that year. Investors using the Fortune 500 as a tool are wise to consider additional measurements in determining whether a company represents a good investment.
The Fortune 500 Index
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A stock index based on the Fortune 500 list was introduced in 1999. Companies on the index must meet requirements that go beyond gross revenues. Those criteria include a minimum share price, market capitalization and daily trading volume. Companies that do not meet the requirements in a given year are dropped from the index for that year and are not replaced.
Competition
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The Fortune 500's main rival as a gauge of business performance is the S&P 500. The S&P 500 is a weighted index of stocks chosen by Standard and Poor's. There is considerable debate about which index provides the best measurement tool for investors, but some argue that the Fortune 500 index is the top benchmark for evaluating large blue-chip stocks.
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References
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