What in the world is the Fortune 500?
By Will Swarts • Bankrate.com

It's no car race, but competitors on the Fortune 500 track pack enough financial horsepower to keep a good chunk of the entire U.S. economy humming along nicely. Revenue from the first 10 companies alone adds up to $1.14 trillion. That's roughly one-eighth the value of all the goods and services produced in the entire U.S. every year.

Fortune magazine, a biweekly financial publication, started listing the top 500 industrial corporations' earnings 46 years ago and it soon became the investor's equivalent of the Sports Illustrated swimsuit issue. At its most basic, the Fortune 500 is a tally of U.S. corporations with the highest revenues for the past year, as reported to the Securities and Exchange Commission on annual earnings reports called 10-Ks. The term itself has become something of a touchstone, a central reference point for evaluating companies, even for people who don't know much about business.

"They are typically the blue-chip companies," says Lynn Reaser, chief economist and senior market strategist for Banc of America Capital Management in St. Louis. "They are the household names that everyone would recognize."

Looking at the perennial occupants of the list's top spots, America's economy would appear to be based on sport utility vehicles (General Motors Corp. (NYSE: GM) , which took the No. 1 spot with 1999 revenues of $189 billion), inexpensive household goods (Wal-Mart Stores (NYSE: WMT) was No. 2, posting revenues of $166.8 billion), and the gas needed to drive the SUVs to the inexpensive household goods stores (ExxonMobil (NYSE: XOM) , at No. 3, had revenues of $163.8 billion).

Wal-Mart's not the only shop in town, either. Scan the list and you'll see plenty of corporations known for their stores -- Sears Roebuck (NYSE: S) at No. 16, Albertson's (NYSE: ABS) at No. 24, and Kmart (NYSE: KM) at No. 27. Target (NYSE: TGT) , J.C. Penney (NYSE: JCP) , Safeway (NYSE: SWY) and Costco (Nasdaq: COST), Mecca to bulk buyers everywhere, are all in the top 50.

Energy companies are cozily ensconced at the top as well with Enron (NYSE: ENE) at No. 18, Texaco (NYSE: TX) at No. 28 and Chevron (NYSE: CHV) at No. 35. And while Boeing (NYSE: BA) at No. 10 and Lockheed Martin (NYSE: LMT) at No. 52 aren't carmakers, as Aerospace powerhouses they make up part of the traditional industrial family that used to be the basis for the whole list.

Like the economy itself, Fortune's annual roster has evolved over time, even if the lineup of the top-earning companies seems pretty similar. These days the list better reflects the diversity of the American economy and how companies have changed. As an example, last year the magazine realized that for the first time in General Electric's (NYSE: GE) history, the company had more revenues from financial services (51%) than from the electrical equipment for which they are best known. According to the list, GE (at No. 5 with $111.6 billion) is a financial services company.

"We acknowledged what had happened in the marketplace," says Mike Cacase, the Fortune editor who oversees its compilation. "As the GEs and Sears Roebucks went into financial services, our definitions started to change."

A staff of 12 is required to tally surveys, do research and confirm facts over the four months it takes to put the list together. Fortune publishes several other lists, including the Global 500, covering multinational corporations headquartered outside the US; the e-50 Index of Internet companies; and the magazine's list of The Most Admired Companies.

He emphasizes that the bottom-line criteria for making the list is revenues, rather than a mix of market size, liquidity and representation of different industries. Those are the criteria that shape the choices for the S&P 500 Index, the Fortune list's main rival as an icon of economic performance.

"We don't sit in a smoke-filled room and decide who's going to be on the Fortune 500 list," Cacase, a former economist at the Federal Reserve Bank says. He also points out that, although the two are close, the 420 public companies on Fortune's list outperform the S&P 500 Index.

Newsstand sales of the issue, which comes out around tax time, are very high. In fact, Fortune used to hold the record for ad pages in a single issue until last year, when it was topped by celebrity-lifestyle magazine InStyle.

While making the Fortune 500 is a bit like reaching the Baseball Hall of Fame, the U.S. economy doesn't offer lifetime membership. Forty-five companies were dropped from the list this year. Some due to mergers, such as Mobil, which lost its No. 12 ranking after it combined with Exxon. Others were just bumped by new arrivals, such as AOL (NYSE: AOL) , which debuted at No. 337, the first consumer Internet company to crack the top levels.

From an investor's point of view, says Reaser at Banc of America, while these are solid bets, they shouldn't make up a whole portfolio.

"One should look at [the Fortune 500 index] and understand who these companies are, but size is not necessarily a measure of profitability or performance," she says. "Biggest is not necessarily best."

Maybe not, but the symbolic clout is still considerable.

-- Posted: Dec. 13, 2000