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Methodology for The Future 50

METHODOLOGY

To identify the Future 50, BCG examined 2,300 publicly traded U.S. companies and reviewed 15 years of financial results through year-end 2016. We divided the companies into two different groups—those above $20 billion in market value at the time of the screening and those below.

Our methodology has two pillars: Market potential and company capacity.

Market potential is measured as a com­pany’s expected future growth as determined by the financial markets. This is determined by calculating the present value of its growth opportunities, which represents the proportion of market value that is not attributable to the earnings power of the existing assets and business model. That accounts for 50% of the overall score.

The other 50% of each company’s score is the measure of its capacity to deliver on that potential. This is assessed by a score comprising 14 factors, which were drawn from a larger group of variables which were tested and calibrated against historical data for their ability to predict long-term growth. These were grouped in four clusters:

Strategy: Trained on 70,000 10-K reports, our A.I. algorithm uses natural language processing to detect semantic fields around initial keywords. It assesses companies’ long-term orientation and also detects “biological thinking,” characterized by an emphasis on adaptation, mutualism, and sustainability, which are essential to thrive in dynamic and complex business environments. Finally, clarity of expression in a company’s strategy and vision is measured using the Flesch–Kincaid score.

Technology and Investment: The capital-­expenditure-to-sales ratio measures a com­pany’s investment in the future. Technology advantage is measured through a company’s patents portfolio, weighted for quality (citations), digital emphasis (share in computing and electronic communication), and sustainability (proportion expiring beyond five years). To account for external innovation, too, a company’s portfolio of startup acquisitions is assessed for similarity with best-performing venture capital funds and share of tech areas with the strongest investment growth.

People: Board size and average age of executives reflects the empirically observed advantage of tight, youthful senior teams, while stability (the inverse of turnover) reflects the observed advantage of consistency.

Structure: The size (revenue-based) and age of the company are strongly correlated to vitality loss, which may however be compensated by revitalization, as measured by sales growth in the past five years.