The Effect Of The 1994 Redefinition Of The FORTUNE 500 On Its Usability As A Benchmark For Corporate Profitability

Abstract

Virtually every Strategic Management casebook has an “advice on how to prepare cases” section.  Within this section invariably is an admonition to “crunch some numbers” (e.g., ROE, ROA).  A weakness of these advice sections is that they do not give good guidance to the student as to what to compare the “crunched numbers” to. This paper will argue that the FORTUNE 500 is an appropriate benchmark for evaluating corporate profitability.  With 48 years (1954 to 2001) of data we are able to effectively place a given firm’s profitability in perspective.  One relatively major problem exists however.  Prior to 1994, the FORTUNE 500 was really two separate 500's–the traditional “manufacturing” 500 and the “service” 500.  Beginning in 1994 FORTUNE combined these two lists.  While this might not appear to be an overwhelming problem, an examination of the profitability components of the “Dupont” equation for the FORTUNE 500 reveals some substantial dissonance. This paper suggests a relatively minor adjustment that can be made to the recent (post ‘94) numbers such that we can have a relatively congruent 48 year data set that can be used as a benchmark for all corporations except “financial institutions.”