Growing up I always thought the Fortune 500 was a list of the richest 500 people in the world. The knowledge that Fortune was a magazine and not just the name of a list had not yet been shared with me. You’re not as naive as I was, so of course you know the Fortune 500 is a list of the 500 biggest companies in the United States. This is the top 10 for your convenience:
| Wal-Mart Stores |
| Exxon Mobil |
| Chevron |
| General Motors |
| ConocoPhillips |
| General Electric |
| Ford Motor |
| Citigroup |
| Bank of America Corp. |
| AT&T |
The Fortune 500 is like CNBC, the “State of the Union” speech, and the Macy’s Thanksgiving Day Parade. They all have no significance but you can’t help but pay attention. That doesn’t mean the list is irrelevant, its just not as important as Fortune wants you to believe. My first annoyance is how the list is generated. Without looking, do you know how they rank the Fortune 500? It’s not based on some complex formula. Plain and simple revenue. That’s fine and all, but it just doesn’t tell me anything I care about. Top 10 with revenue and profit:
| Company | Revenue (Millions) | Profit (Millions) |
| Wal-Mart Stores | $378,799 | $12,731 |
| Exxon Mobil | $372,824 | $40,610 |
| Chevron | $210,783 | $18,688 |
| General Motors | $182,347 | $(38,732) |
| ConocoPhillips | $178,558 | $11,891 |
| General Electric | $176,656 | $22,208 |
| Ford Motor | $172,468 | $(2,723) |
| Citigroup | $159,229 | $3,617 |
| Bank of America Corp. | $119,190 | $14,982 |
| AT&T | $118,928 | $11,951 |
Instead of ranking based on revenue, a better list can be compiled based on profit. Two of the top 10 (Ford and GM) are immediately dropped because they didn’t even make a profit. Wal-Mart drops because they don’t make much profit. They have to harass vendors in order to keep prices low. If Target ever figures out a way to do the same, Wal-Mart will join K-Mart on Chapter 11 train. So who gets the title as most profitable? Exxon Mobil, duh! For more info on why this isn’t a big deal read Why Big Oil Isn’t Your Enemy. Another oil giant in the top five is Chevron. GE and two banks are the other 3 on this top 5. What is interesting here? JP Morgan made less than BofA in revenue, but made more profit. Now the difference is small, but it shows JP Morgan may be a better investment choice between the two (assuming fair value). Top 5 in profit:
| Company | Revenue (Millions) | Profit (Millions) |
| Exxon Mobil | $372,824 | $40,610 |
| General Electric | $176,656 | $22,208 |
| Chevron | $210,783 | $18,688 |
| J.P. Morgan Chase & Co. | $116,353 | $15,365 |
| Bank of America Corp. | $119,190 | $14,982 |
Still, there may be another metric that evens the odds. Instead of measuring all out profit, what if we looked at profit in terms of revenue, AKA Profit Margin. Profit Margin is the percentage of revenue that was profit. In idiot terms – how much of each dollar a company made was profit. For example: Wal-Mart’s profit margin is 3%. For every dollar you pay in the store, $.03 of that dollar is profit to Wal-Mart. Compare to AmerisourceBergen (a pharmaceutical wholesaler), who pockets $.43 of every dollar. This was best on the list. You know Coca-Cola and Cisco Systems, and Altria is a tobacco company. Number 2 on the list is Microsoft with a 28% profit margin. Despite the incredible margin, Microsoft stock has been stagnant for years. I have said this in many conversations but never on this site: Microsoft is the most undervalued stock in the S&P500. Top 5 profit margin:
| Company | Revenue (Millions) | Profit (Millions) | Profit Margin |
| Microsoft | $51,122 | $14,065 | 28% |
| Altria Group | $38,051 | $9,786 | 26% |
| Cisco Systems | $34,922 | $7,333 | 21% |
| Coca-Cola | $28,857 | $5,981 | 21% |
Alright we looked at the companies that made the most profit and the companies that have the best margins, what does it matter? Instead of scanning a list, it forces you to think about what companies are important, and where the money is really being made. Of course it allows you to speculate on things like: If the operation is scalable, Microsoft can make the same profit as Exxon with less than half the revenue. That’s the kind of stuff worth reporting. The statement below is even more profound:
If I buy a $1 Coke from Wal-Mart, I know 3 cents of profit went to Wal-Mart and 21 cents of profit went to Coca-Cola.
That’s fascinating to me. It also helps to explain why Warren Buffet owns a bunch of Coke stock and only a little Wal-Mart. It also makes the Fortune 500 seem less important.
Update: A rep from AmerisourceBergen contacted me and informed me their revenue was in fact $66 billion instead of the $1 billion I reported. Please disregard this line item as the rep was very much correct. I do not know where I got that figure from. As the rep points out, this makes their profit margin terrible. Sorry for the bad year. Next time don’t be so grumpy when you contact me, this is a blog, not WSJ.
 By The Weakonomist |
The Weakonomist is the founder of Weakonomics. Clicking the picture of the puppy will tell you more about him. If you like what you're reading consider subscribing to the blog, following him on Twitter, and checking out the related posts below. Please consider a donation if you really enjoy Weakonomics. |
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