Sometimes, making a list just means you have a lot of things to do. Making the list, on the other hand, can mean you've been recognized for some sort of major achievement. For an actor that might be an Oscar nomination, for a writer it could be making The New York Times best-seller list or for a business it might be making your way into the Fortune 500. If you dream of one day seeing your company distinguished that way, then you do indeed have a very significant to-do list.
TL;DR (Too Long; Didn't Read)
Fortune 500 companies must be American companies that file financial statements with a government agency. They are ranked according to the revenues they've reported to their respective government agencies for their most recent fiscal year.
What's a Fortune 500 Company?
The shallowest meaning of the list is pretty simple and understandable. Every year, iconic business magazine Fortune ranks American companies by their sales revenue as reported for the company's previous fiscal year and then publishes that ranked list. The 500 top companies by that criterion become the Fortune 500, and the next 500 become part of a longer list known as the Fortune 1000. Making the Fortune 1000 is a significant achievement in its own right, and it's a milestone on the road to becoming a Fortune 500 company, but it doesn't deliver the same kind of bragging rights that come with making the shorter list.
The Life of a List
The first-ever Fortune 500 list was published back in 1955, when the American economy was centered firmly around building things. That's why it made sense at the time to restrict the list to companies involved in the manufacturing, mining and energy sectors. Even then, though, there were some large companies left out by that restriction. Over the next few decades the service sector came to be increasingly important, and excluding it from the Fortune 500 requirements made the list less relevant as a snapshot of the American economy. The list's criteria changed in 1994 to add the service industry, just in time for emerging titans like Walmart to take a place in the limelight. That decision looms large in hindsight, with technology blurring the lines among traditional sectors. There are still computers wearing the Apple and IBM names, for example, but software and services have become the lifeblood of both companies.
Eligibility for Consideration
Fortune magazine intended its list to be a ranking of American companies as opposed to companies doing business in America, and its formal criteria reflect that. To be an American company in the Fortune 500 definition means a few specific things. Incorporating in the U.S. and operating in the U.S. are a pretty obvious starting point. The companies can be public, private or even cooperatives – mutual insurance companies and credit unions would fit that description – but they must file financial statements with a government agency to qualify. Companies that don't file reports with the government are excluded, and so are U.S. companies that are consolidated into another company, either domestic or foreign, for reporting purposes.
The Annual Revenues
The other half of the equation is the revenue reported by the companies under consideration, and there are ground rules in place there as well. First, companies are ranked according to the revenues they've reported to their respective government agencies for their most recent fiscal year. Not all companies use the same fiscal year, so the comparison isn't quite apples to apples, but it's pretty close. When companies on the list have subsidiaries whose revenues are consolidated into those of the parent company, those revenues are included. The list also shows after-tax profits for each company, but those don't play a role in the rankings. It's completely possible to rank among the very highest companies on the list for overall revenue and yet lose money for the year. If you're a Fortune 500 company, part of the package is having the financial resources to weather hard times.
Those Other Lists
The Fortune 500 isn't the only list of its type, of course. Other magazines and other finance-related companies have their own. Fortune itself creates a global version of its list, putting U.S. companies into context against their counterparts from around the world.
Within the United States, the two other most important lists are the Standard & Poor's 500 and the Dow Jones Industrial Average. Both are important benchmarks for the American economy as a whole, but they're not as broad as the Fortune 500 because they exclude private companies, focusing purely on publicly traded companies instead. The S&P index is made up of large, publicly traded companies from different sectors, carefully selected to be a good representation of the economy as a whole. They're weighted by their total market capitalization, which is their stock price multiplied by their number of shares. The Dow is even more limited, consisting of just 30 stocks that are weighted by their stock price. You can make a case that the Fortune 500, by focusing on revenues rather than stock price or market cap, is a better indicator of the health of the economy.
The Bottom Line
If you've set yourself the goal of getting your company into the Fortune 500, it's not as simple as hitting a given dollar amount of revenue. There is no cut line for the Fortune 500 and no simple dollars-and-cents goal to show you've made it. The companies on the list get there by outperforming everyone else, and the amount of actual revenue needed to hit that goal is different every year.
In 1955, when the list was first published, you needed to bring in $49.7 million to get a toehold in the 500. In 2018, the 500th spot on the list went to workwear vendor CINTAS at $5.428 billion. As of 2013, Fortune itself calculated that the threshold for making the cut had risen by an average of 4.3 percent over the decades when adjusted for inflation. Given those two figures, you can work out a reasonable revenue goal that might get you there over the next 10 years, 20 years or whatever window seems appropriate for your situation.
Play the Long Game
Unless you're already on the verge of becoming a major company, any realistic plan to get yourself into the Fortune 500 probably requires a decades-long window. Some companies on the list are about as old as the country itself, and longtime leaders such as DuPont and Colgate-Palmolive are starting their third century of operation. Even in the tech industry, longevity matters. Google has been around for over 20 years and Apple for 40, and the company now called IBM dates back to the 19th century.
There's a Checklist
If you're an entrepreneur with aspirations to make the list, Fortune itself provided a useful list of attributes back in 2013 that distinguishes Fortune 500 companies. A focus on your company's long-term goals is certainly one of them, but there are others. One is adaptability. Your road to the 500 will take a lot of years, and your current offerings probably aren't going to get you all the way there. You'll have to keep changing to keep abreast of your clients' needs and continue to provide them with value. That might mean going completely away from what's now a core product or service as your market changes. For example, IBM established the personal computer as a business tool but hasn't built them in years.
Other Key Attributes of the 500
Other key attributes that can take you into the 500 are equally difficult to quantify. One of them could be described as vision, or more simply "big ideas," which might be even more important than your current revenues. Car maker Tesla is a prime example. It sits squarely in the middle of the 2018 list in the 260th position, despite having teetered on the edge of failure several times in its history. Another is your company's ability to retain and develop its best people, a priority that many companies claim, but few really excel. The most important of all, of course, is continued, strong growth year after year and decade after decade. No matter how many other things you do right or wrong, at the end of the day it takes a lot of sustained growth to make the list.
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- The Motley Fool: What Is a Fortune 500 Company?
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- Investopedia: What Is the Difference Between the S&P 500 and the Fortune 500?
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Fred Decker learned business fundamentals at second hand as an insurance and mutual funds broker, and at firsthand as a retail store manager and the chef/proprietor of his own restaurants. He has written hundreds of business-related articles for sites including Zacks.com, Chron.com, Vitamix.com, Bizfluent and GoBankingRates and many others. He was educated at Memorial University of Newfoundland and the Northern Alberta Institute of Technology.