See How They Grow

FORTUNE'S annual compilation of figures for the nation's 500 largest industrial companies, published this week, serves as a kind of X ray of the corporate sector of the U.S. economy: it illuminates trends that can be discerned only dimly in individual company reports. Among last year's notable tendencies were a somewhat disconcerting ability of the big companies to cut employment while increasing sales, a continued sharp decline in merger activity and what looks like the beginning of a turn away from diversification.

Overall, 1971 was a middling-good year for the 500. They increased total sales 8.4%, to nearly $503 billion, and profits 8%, to $23.4 billion. The figures, however, are considerably distorted by the standout performance of General Motors, which benefited from a banner year for auto sales. By itself, G.M. accounted for three-quarters of the profit gain posted by the entire group. Other giants got bigger, too. Seven companies joined the once-exclusive billion-dollar-sales club, raising membership to 127. The newcomers: Philip Morris, Nabisco, Bristol-Myers, Combustion Engineering, Campbell Soup, Iowa Beef Processors and CBS. Meanwhile, Standard Oil of California became the twelfth U.S. company to register sales of more than $5 billion a year.

The 500 also slightly increased their leverage in the U.S. economy--though in such a way as to raise questions about their efficiency. Last year they accounted for 66% of all sales by industrial companies, up from 65% in 1970 and little more than 50% a decade earlier. Their share of industrial profits, however, stayed put at 75%, almost unchanged from 1970. Obviously, smaller companies have been increasing their profitability more rapidly than the large corporations, suggesting perhaps that some of the 500--G.M. excluded--have pushed past their optimum size.

In one respect, the 500 demonstrated a pointed kind of efficiency: they sliced employment by 2%, to 14.3 million, while increasing sales. As a result, their average sales per employee rose 10%, to $35,166. G.M., Ford and ITT, the three biggest employers, all added to their payrolls. But General Electric, the fourth largest, chopped its work force 8.5%, letting 33,600 people go.

Other highlights:

> Only two mergers occurred among the 500 last year: National Steel acquired Granite City Steel, and General Host took over Cudahy. That was the smallest number since 1958; it compared with a recent peak of 23 in 1968. Apparently, the Justice Department's opposition to big mergers is helping to hold them down.

> Twenty-four companies wrote off a startling total of $1.5 billion in various losses last year, and some of the largest represented the cost of unwinding profitless diversification. RCA wrote off $490 million as the expected loss on liquidation of its computer business. American-Standard has shucked its mining-equipment and air-conditioning divisions, and is getting out of recreational-land development, mobile-home parks and foreign housing. Writeoff: $122 million.

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