What is a Fortune 500 Company, and What Does it Take to Become One?
Stock trading enthusiasts and investors often encounter the term “Fortune 500 company”, especially when buying shares in blue-chip companies.
Fortune 500 is known for having some of the best companies in the world. Amazon, Apple, and Walmart are a few examples of globally renowned corporations with a strong presence across different industries.
Let’s dive deeper into this ranking and discover what it means to be a Fortune 500 company.
Key Takeaways
- Fortune 500 companies consist of the best businesses in the United States by annual revenue figures.
- Companies must operate in the US and provide full financial statements to governmental agencies for three quarters at least.
- Fortune 500 list has been published yearly since 1955, with a major change in 1995 by adding the service sector.
Fortune 500 Definition
Fortune Media Group Holdings is a media company based in New York City that issues Fortune magazine, a business publication that discusses global businesses, investing trends, trading and finance, and more.
It is considered a competitor to the Bloomberg Businessweek’s Forbes magazine.
In 1955, Fortune 500 started yearly publications to list the top United States companies based on their annual income. Fortune 500 companies come from different industries, such as technology, healthcare, finance, supply chain, etc.
Being named in the Fortune 500 list gives the company a distinguished prestige and status on the global stage as a highly successful organisation.
History of Fortune 500 Companies
Fortune magazine was launched in 1929 during the great depression in the US and quickly made its way as a leading business publication. In 1955, the magazine’s assistant managing editor, Edgar P. Smith, issued the first list of the top 500 companies in the US, named Fortune 500.
The intention of the magazine was to illustrate the influence of the US private and public companies on the world, especially when industries were thriving following the great depression that swept the global economy.
Initially, the list was exclusive to the most influential sectors, like manufacturing, mining and oil and gas industries, with companies like Exxon Mobil, General Motors and US Steel leading the Fortune 500 in the world.
In 1995, the first and most critical change to the list was made by adding the service sector, adding over 290 new entities to the record. As service companies were included, Walmart and AT&T made it to the top five positions, claiming the fourth and fifth rankings in the same year, respectively.
Ranking Methodology for Fortune 500 Companies
Fortune 500 companies are ranked by their annual revenue of the previous year. For example, the 2024 list involves numbers from the 2023 fiscal year.
Organisations must operate within the borders of the United States and register their business and statements in a governmental agency. Additionally, entities must complete their documentation for at least three quarters; otherwise, they are excluded from the list.
These criteria cover public corporations with publicly disclosed financial statements and traded shares, as well as private companies that exclusively file their balance sheets and documents with the government.
From the magazine’s perspective, a team of auditors and accountants checks and verifies the Fortune 500 revenue statements to rank the registered entities correctly.
How to Become a Fortune 500 Company
Besides being operationally and physically existing in the US, companies must be registered as for-profit; non-profit organisations are not included.
Moreover, entities must file financial statements, including any consolidated subsidiary and receivables from ceased products or services. In a nutshell, the company must have one of the top 500 after-tax incomes in the US.
Fortune 500 vs S&P 500
Fortune 500 and S&P 500 differ in how they compile the listed companies and their ranking criteria.
The S&P 500 list is maintained by the S&P Dow Jones Indices LLC, which considers the stock valuation of publicly traded companies. S&P 500 lists the largest companies by market capitalisation, exclusively United States corporations.
Thus, it does not consider the financial disclosure or annual revenues of entities. Instead, S&P looks at their stock indices and each company’s weight in the overall index.
On the other hand, Fortune 500 lists the companies in a more straightforward manner by looking at their revenue stream and financial documentation for the respective fiscal years.
For example, according to 2023 numbers, Walmart ranks first by the Fortune 500 definition. However, when it comes to stock valuation, the S&P 500 ranks it at #15 because it has a lower weight in the overall index.
Top Companies in The Fortune 500 List
The Fortune magazine issues multiple lists throughout the year, including “The Most Innovative Companies”, “The Best Working Place”, and more.
The updated 2024 Fortune 500 list is expected to be out on June 3. In the meantime, let’s take a look at the top ten companies of 2023.
- Walmart: The reigning leader with realised revenue of $611 million, despite facing decreasing profits by 14.6%. Walmart is considered the largest employer in the world, with over 2 million employees.
- Saudi Aramco: Jumping from the 6th position in the previous year, Saudi Aramco achieved an astonishing +50% revenue growth, taking its after-tax income to $603 million.
- State Grid: The state electricity supplier in China kept its position with $530 million in revenue.
- Amazon: The renowned technology and e-commerce company dropped from the 2nd position after losing %108 in profits and accumulating $513 million in revenue.
- China National Petroleum: The national gas and oil energy supplier dropped by one position despite recording 118% growth in profits on its income of $483 million.
- Sinopec Group: The Chinese Petrochemical conglomerate recorded revenues of $471 million with a 16% growth in profits.
- Exxon Mobil: The world’s leading gas and oil company by market cap improved its position from the 12th after hitting 141% profit growth and earning $413 million in revenue.
- Apple: The famous mobile and technology producer with $394 million in revenues and just over a 5% increase in profits.
- strong>Shell: The UK oil and gas company made the annual list for the 29th time and improved its ranking by six positions. Shell increased its profits by 110% and earned registered revenues of $386 million.
- UnitedHealth Group: The US health insurance and services provider made it into the top 10 after earning $324 million in revenues and growing its profits by 16.4%.
Conclusion
Fortune magazine is a leading business journal that talks about stocks, investments, trading, economy and other topics that interest entrepreneurs.
The definition of a Fortune 500 company is simply that an organisation has recorded annual revenue that exceeds thousands of companies out there, placing it among the top 500 organisations in the world.
The criteria are straightforward. Businesses must be legally working in the US and register their realised revenues and financial statements with a government agency. These records are checked by experts in the Fortune magazine who compile the top 500 list and announce it every year.
