Politeía Digest

Quis custodiet ipsos custodes?

World’s Largest Companies / 2009-2010

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There are many different ways to value a company, each of which creates a very different ranking of the world’s largest companies.

For the Fortune Global 500 list, the ranking is based on revenues. According to the magazine, companies are ranked by total revenues for their respective fiscal years ended on or before March 31, 2010. It is not required that they be public companies, but they must publish financial data and report part or all of their figures to a government agency in order to be considered for the list. Revenue figures for corporations include consolidated subsidiaries and reported revenues from discontinued operations but exclude excise taxes. For banks, revenue is the sum of gross interest income and gross noninterest income. For insurance companies, revenue includes premium and annuity income, investment income, realized capital gains or losses, and other income, but excludes deposits.

In the FT Global 500 the ranking is based on market value. Market value, or market capitalization takes a snapshot of the share price multiplied by the number of shares outstanding.

Finally, the Forbes Global 2000 uses four metrics—sales, profit, assets and market value—each of which is equally weighted, in order to determine the top companies, and only public companies are considered.

Each of the rankings has its strengths and weaknesses in terms of determining the world’s largest corporations. For example, using solely revenue as a measure—as in the Fortune list—does not take into account differences in expenditures for the same amount of incoming revenue, and thus gives a bias towards revenue-heavy retailers.

Using market value—as the FT list does—involves a single snapshot of the relative value that investors put on the company—without accounting for variations due to seasonality, the impact of positive or negative news headlines about the company, M&A rumours, executive changes, and the many other factors that affect share price on a daily basis. Finally, listing only public companies—as with the Forbes ranking—excludes privately-owned and wholly state-owned corporations.

Plus, the rankings may not take into account the impact of variations in accounting standards, among other factors. The impact of timing can be seen in the measure of market value—Exxon Mobil is listed with a $316.2 billion market value on the FT ranking, while it is listed with a $308.8 billion market value on the Forbes ranking.

By revenue, on the Fortune ranking, US-based retailer Wal-Mart comes in top of the ranking—with $408 billion in revenues. In second spot is oil & gas company Royal Dutch Shell out of The Netherlands—with revenues of $285.1 billion. Coming a close third is Exxon Mobil out of the US, with $284.6 billion in revenues.

In comparison, coming top of the FT ranking is PetroChina—with a market value of $329.3 billion, followed by Exxon Mobil at a market value of $316.2 billion, and US technology company Microsoft at $256.9 billion. Microsoft does not make the top 20 on either the Fortune or the Forbes lists, and Wal-Mart appears 7th on the FT ranking, based on market value.

Topping the Forbes list is JPMorgan Chase, followed by General Electric and Bank of America. All three are US-based companies in the banking and general industrial sectors. Exxon Mobil—which comes in the highest across the three rankings—made fourth place on the Forbes list. Royal Dutch Shell ranks 8th and Wal-Mart ranks 14th on the Forbes list.

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Written by Theophyle

October 15, 2010 at 5:16 pm

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