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 (in the USA)? The challenge is to decide how to define "large".
One way might be to simply 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, these are called "assets". However, this is very misleading, as many companies do not own, but rent or lease most of their equipment and buildings. Most importantly, money owed to banks is called an "asset" of the bank, and by this measure alone, banks would be ranked as the largest companies by far.
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 than a company like General Motors which has hundreds of thousands of employees and many factories and other fixed assets. In addition, "profit" in a company is defined as all the money made after the cost of things sold and after the salaries are paid to all the employees. As an example, a company might sell shoes that cost a dollar to make but are sold for one hundred dollars. However, if the CEO paid himself $99 dollars per shoe, the company would be making no profit at all.
Another method might be to look at the revenue earned by the company. This is how the Fortune 500 ranks companies. This method is heavily biased towards distributors such as Walmart, which may have a high volume of sales but may be operating on very thin profit margins.
Another method might be to look at the market capitalization of the company, that is, the price to buy the entire company. However, this price 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 dot-com bubble crashed, Cisco's perceived value changed dramatically.
Recognizing such issues, Forbes uses a balanced mix of these factors to rank companies.
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