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Forbes 500

From Academic Kids

The Forbes 500 is an annual listing of the top 500 American companies produced by Forbes Magazine. The list is calculated by combining five factors: sales, profits, assets, market value, and employees.

Reasoning behind the list

The Forbes 500 was created to answer the question, what are the largest companies?

The problem comes however when one tries and figures out how to define "large".

One way might be just to add up the amount of stuff a corporation owns, how much money it has in the bank, how many buildings it owns, how much equipment, etc. Overall this is called "assets". This is very misleading however, as many companies do not own, but rent or lease most of their equipment and buildings. Most importantly however, money owed to banks is called an "asset", and banks would be far and above ranked as the biggest companies by this ranking alone.

Another method might be to look at how much profit a company makes. But this would rank a company like Fannie Mae, which has only around 9000 employees and is essentially purely intangible, as one hundred times bigger as a company like General Motors which has hundreds of thousands of employees and many factories, etc. In addition, "profit" in a company is defined as all the money made after the cost of things sold AND after the salaries paid to all the employees. So a certain company might be selling shoes which cost a dollar to make but are sold for one hundred dollars, but if the CEO paid himself 99 dollars per shoe the company would be making no profits whatsoever.

Another method might be to look at how much money people have paid to the company, revenue. This is how the Fortune 500 ranks companies. This method is heavily biased towards distributors however, such as stores, which may have a high amount of sales but may just be operating on very thin margins.

Another method might be to look at the market capitalization of the company, that is, the price to buy the entire company. This price however, is not set by any rule, but by how the people value the company and its prospects. Thus, in the late nineties, Cisco Systems would have been the biggest company by this measure. When the bubble crashed however, this changed dramatically.

Because of all these issues, Forbes uses a balanced mix of all of these factors to rank companies.


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