What Is a Fortune 500 Company? How Companies Are Ranked

What Is the Fortune 500?

The term Fortune 500 refers to a list of 500 of the largest companies in the United States compiled by Fortune magazine every year. Companies are ranked by their annual revenues for their respective fiscal years. This list includes both public and private companies using publicly available revenue data. To be a Fortune 500 company is widely considered to be a mark of prestige.

Key Takeaways

  • The Fortune 500 is an annual list of 500 of the largest US companies ranked by total revenues for their respective fiscal years.
  • The list is compiled and published by Fortune magazine.
  • Being on the Fortune 500 is considered to be prestigious—firms on the list are considered to be of high quality.
  • The Fortune 500 has put out a list of top companies since the year 1955.

Understanding the Fortune 500

Fortune magazine was founded in 1929 by Henry Robinson Luce. The first issue was published the following year and has since become one of the world's leading business publications. Originally printed monthly, the magazine put out 16 issues every year and also has a major presence online.

The magazine compiled its first list of the most successful American companies—both public and private—in 1955. It was created by editor Edgar P. Smith in an effort to measure the size and power of American businesses during a time when the country's economic power was "the envy of the world." Originally called the Fortune Industrial 500, the name of the list was shortened to Fortune 500.

The Fortune 500 survey includes companies that are incorporated and operate in the United States and file financial statements with government agencies. This includes companies that are both publicly traded and privately held. Private companies that don't file financial statements with government agencies, foreign corporations are excluded, as are American companies consolidated by other companies and those that neglect to report full financial statements for at least three quarters of the current fiscal year. As of 2020, companies are ranked by total revenues for their respective fiscal years as reported on their 10-K filings or comparable financial statements.

About two-thirds of the Fortune 500 appear on the S&P 500 Index, so consider an S&P 500 index fund if you want to invest in many of these companies.

More than 1,800 American companies have been featured on the list over the course of its history. The list has changed dramatically from the very first Fortune 500. Mergers and acquisitions (M&A), shifts in production output, and bankruptcies have taken companies off of the list. The impact of a recession can also take out multiple companies from individual sectors. The Fortune 500 list can often be a telling sign of how strong the economy is or if there has been an economic recovery after poor performing years.

Special Considerations

As of 2020, Walmart (WMT) took to the top spot on the Fortune 500 list for the eighth year in a row. The company earned revenue of $524 billion. Online retailer Amazon (AMZN) took the second spot with revenues of $280.5 billion, jumping up four spots from 2019. Exxon Mobil (XOM) came in third with revenues of $265 billion, while Apple (AAPL) and CVS Health (CVS) ranked in fourth and fifth.

The three most profitable companies on the 2020 list were as follows:

  • Berkshire Hathaway (BRK.A/BRK.B) with net profits of $81.4 billion
  • Apple with net profits of $55.2 billion
  • Microsoft (MSFT) with net profits of $39.2 billion

Notable newcomers to the list include Dow (DOW), Baker Hughes (BKR), and Uber (UBER).

The History of the Fortune 500

As noted above, the idea for the list came from Edgar P. Smith, who was an assistant managing editor for Fortune. Smith's idea took off and provided the grounds for the popular annual list. The original Fortune 500 lists contained only companies that were in the manufacturing, mining, and energy sectors, limiting inclusion for many big-name companies. To secure a spot on the list, a company had to produce $49.7 million in annual revenue. In the original 1955 Fortune 500 list, General Motors (GM) was the top company with annual revenues of $9.8 billion.

The Fortune 500 underwent its biggest change in 1995. The new list continued to include companies from the original manufacturing, mining, and energy sectors, but it also included service companies for the first time. The change greatly impacted the future of the Fortune 500 list.

For example, service companies made up 291 of the 500 entries that year. Three of the newly included service companies even made the top 10 listings in the Fortune 500. Walmart ranked fourth, AT&T was number five, and Sears Roebuck took the ninth spot on the list. Walmart has spent several years at number one—a position it would not have held if this change didn't occur.

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