How the Forbes 500 List Worked
Forbes no longer publishes its list of the 500 best companies in the United States. It was once a popular staple for the magazine, but the last list ran in 2003, and only records information for 2002.
The list looked at a company from five different angles: sales, profits, assets, market value and employees. It was meant to help profile which companies were high growth, how well they were doing, and what jobs were being produced. It was also a measure of a company’s success, and probably had some bearing on investments as well.
The value of assets that Forbes measured was a little obscure for the average person to understand. Essentially, the magazine looked at a company’s ability to generate cash through the ownership or control of something else. This method would naturally favor banks, which hold many assets, but the other factors keep the list in check.
For example, profit has to do with employees and assets as well. Wal Mart employs 2.1 million people, but its profit could be considered equal to a company like Goldman Sachs with substantially fewer people on payroll.
This method of calculation is vastly different from what you find in a magazine like Fortune, where their 500 list is calculated almost exclusively on revenue. This would favor distributors like Wal Mart and Amazon, who may have high volume sales but low margins.
The list was also open to some error, or manipulation of sorts. Consider the tech bubble of the 90s, where a company like Cisco was very highly valued. After the dotcom bubble burst, and values tumbled, the list was basically proven wrong.
Phineas Upham is an investor from NYC and SF. You may contact Phin on his Phineas Upham website or LinkedIn page.