TOTAL RETURNS FOR FUTURE 50 COMPANIES’
SHAREHOLDERS SINCE LIST PUBLICATION
2018 FORTUNE FUTURE 50
MSCI WORLD GROWTH INDEX
MSCI WORLD INDEX
13.9%
10.1.%
7.6%
SOURCE: BCG HENDERSON INSTITUTE
THE SECRET TO
STAYING ‘VITAL’
In the third edition of the Future 50
index, we’ve refined our proven
formula for identif ying the global
companies that are best positioned
for long-term growth.
BY MARTIN REEVES
80
FORTUNE.COM // NOVEMBER 2019
A FORWARD-LOOKING INDEX
MOST BUSINESS METRICS indicate only what happened in the past.
That used to be sufficient. In an earlier era, it was possible for ex-
ecutives to make reasonable decisions about future strategy based
on backward-looking indicators. That is no longer true given the
pace of technology-driven change. To help managers look forward,
two years ago BCG and Fortune created the “Future 50,” an index
that calculates the long-term growth prospects of major public
companies and identifies the ones coming out on top.
The Future 50 index is based on two pillars: a “top-down”
market implied view of a company’s potential and a “bottom-
up” assessment of its capacity to deliver growth. We analyze this
capacity across four dimensions (strategy, technology and invest-
ments, people, and structure), within which we quantify and test
many theories from academic literature and business practice of
what drives long-term performance.
Our analysis leverages a wide range of financial and nonfinan-
cial data sources. For example, we gauge the quality of a com-
pany’s patent portfolio as a measure of technology advantage.
And we use natural language processing algorithms to parse
companies’ annual reports and SEC filings to assess their strate-
gic thinking on several dimensions, such as long-term focus and
serving a broader purpose beyond financial returns. Finally, we
use machine learning to choose and weight these factors accord-
ing to their impact on long-term revenue growth.
The resulting index is intended to measure long-term vitality,
which may not necessarily be reflected in short-term perfor-
mance. Nevertheless the Future 50’s track record is encouraging
so far: While not every company outperformed, each of our first
two lists in aggregate significantly outperformed the broader
market. The 50 companies we identified last year, for instance,
have produced a cumulative shareholder return of 13.9% vs.
7.6% for the MSCI World stock index.
THE IMPORTANCE OF A PATH TO PROFITABILIT Y
ANOTHER CONSIDERATION of this year’s ranking is that while long-
term growth potential is important, businesses must have a path
to profitability in order to exercise it—especially as conditions
weaken and investors become more skeptical. It is impossible to
predict for sure whether companies will overcome this challenge,
but this year we have added a screen to filter out those with espe-
cially high risk: companies with negative operating cash flow.
RISK Y BUSINESSES
WE HAVE ONCE AGAIN stratified our ranking to account for other types
of elevated risk, such as dependence on individuals or sensitivity to
shifts in government policy. All high-growth companies have some
inherent risk, of course, especially with rising macro uncertainty.
But we have classified three companies—Tesla, Facebook, and
A
S GOOD AS THINGS may appear on the
surface—stock indexes near highs,
historically low unemployment
in the U.S.—there is no getting
around the fact that business conditions have
become more challenging this year. Macroeco-
nomic indicators are weakening, and policy
uncertainty is at a historical high. Venture and
IPO funding show signs of potentially drying
up. And the tech sector is facing regulatory
scrutiny and declining public trust.
In this environment, businesses may be
tempted to focus on short-term survival and
performance. Indeed, companies that are not
generating sufficient cash flow today would be
especially threatened by a downturn. However,
there is still both an opportunity and a need
for companies to also focus on the future: Our
research at the BCG Henderson Institute has
shown that even in economic downturns, rev-
enue growth (not cutting costs) is the primary
driver of total shareholder returns. Further,
even the best-performing companies are in-
creasingly likely to regress to the mean in sales
growth given today’s business climate—so they
need to continually renew their advantage if
they wish to outperform.
In other words, it is more important than
ever for companies to have vitality—the ca-
pacity to reinvent their businesses and sustain
long-term growth.
T HE FU TURE 50 —INTRO
