(FORTUNE Magazine) – Want to polish up your corporate reputation? Start giving investors something to smile about. Keep profits growing steadily -- a short-term surge does not a long-term impression make. And beef up your return on assets. Reputation is a matter of perception, but a new FORTUNE study finds that roughly half that perception can be explained by a company's financial performance over time. Says Roberto Goizueta, CEO of Coca-Cola, one of America's most admired companies for the fourth year in a row: ''I get paid to make the owners of the Coca-Cola Co. increasingly wealthy with each passing day. Everything else is just fluff.'' In this issue FORTUNE presents its 11th annual ranking of corporate reputations. Assisted by the opinion research firm Clark Martire & Bartolomeo, we asked 8,000 senior executives, outside directors, and security analysts to rate 311 companies in 32 industries on such attributes as quality of management, quality of products, and innovativeness. The results, from most admired Merck to least admired Wang Laboratories, are displayed on the following pages. This year, for the first time, we probed beyond the survey data to explore what drives opinion about a company's stature. Reputation, by nature, is ''soft'' information, based on perceptions of reality rather than hard mathematical data. So we decided to find out how much of a company's reputation can be traced to the tangible numbers of the balance sheet, the income statement, and stock performance. A lot, it turns out, but far from all. Clark Martire ran what statisticians call a multiple regression analysis comparing the findings from the opinion poll with what one might expect perceptions to be if they were based solely on financial performance. (For further explanation of our methodology, see box ''How It Was Done.'') The survey data were plotted against 12 financial measures, including profits, assets, and return on shareholders' equity. The measures that correlate most closely with reputation turned out to be, in order of importance: ten-year annual return to shareholders, profits as a percent of assets, total profits, and stock market value. By contrast, total assets and a single year's earnings growth don't seem to get much respect. This year's most admired are financial paragons all, and their shareholders have been amply rewarded. In fact, using a formula derived solely from their financial performance, Clark Martire could predict that many of them would land high in the reputation rankings. No. 1, Merck, was forecast the winner based on financial performance alone. Coca-Cola and Wal-Mart Stores make the predicted top ten as well. Financial performance roughly correlates with Liz Claiborne's reputation and with Procter & Gamble's. Says P&G Chief Executive Edwin Artzt: ''Financial consistency is more important than it gets credit for, in terms of reputation.'' But there are plenty of exceptions. Take UST, which the financial model predicts would be No. 2. In fact, the tobacco company hovers at No. 94 in the reputation survey. If the financial numbers were all that mattered, drugmaker American Home Products, the 13th most profitable FORTUNE 500 industrial company, would be challenging Liz Claiborne for its lofty eighth-place ranking. Yet those polled put American Home Products at No. 132. With financial performance accounting for only about half of a company's reputation, other factors clearly have plenty of sway. UST's mediocre ranking seems to be the result of a ''bad guy'' factor. It makes moist snuff (Copenhagen and Skoal), and the tobacco industry as a whole received the lowest mean scores of any industry -- lower even than the thrift institutions. As for American Home Products, though its Dristan and Anacin are in nearly every bathroom and the company has been generous with dividends, jacking up its long-term return to investors, it is not considered a leading inventor of new drugs. Says Kenneth Nover, a security analyst with A.G. Edwards: ''American Home Products is seen as stodgy. It's not a research pioneer like Merck.'' And why are some companies more esteemed than their financial performance would suggest? Going strictly by the numbers, 3M should be No. 34 instead of No. 4, and J.P. Morgan No. 81, not No. 9. It turns out that a most admired company is usually a good guy. Merck scientists discover lifesaving drugs, and Boeing carries the American flag abroad as the country's biggest exporter. Year after year, 3M grinds out innovative products that eat up share in what are basically commodity markets. This year the Minnesota giant is rolling out revolutionary -- yea, verily, revolutionary -- scouring pads made from recycled plastic that do everything steel wool does except rust and stain your sink. A big, old company that keeps generating fresh ideas and products commands respect: It is doing what other old-timers, like IBM and General Motors, didn't. J.P. Morgan, back at the top after slipping in 1989, weathered some rugged years in the late Eighties when it took reserves against its loans to less- developed countries and earnings suffered. Morgan appeared slow-witted and stodgy for avoiding extensive leveraged-buyout and real estate lending, then hot businesses for other banks. But its conservatism has paid off big: Today the bank has a copper-bottomed balance sheet and AAA rating. Says Daniel Murray, an analyst with Argus Research: ''Morgan put absolute financial soundness over maximization of profits in the short term.''

Of the subjective factors that make up reputation, the executives, directors, and analysts polled agree, as they have since the survey began, that quality of management is paramount. Next comes quality of products or services, followed by the ability to attract and keep talented people. Responsibility to the community and environment is considered least important. But most companies at the top tend to do everything pretty well. Take Coca- Cola. The company earns its good name -- and nearly $2 billion a year -- paying constant attention to product quality. Such concentrated effort didn't save it from boners like the so-called new Coke, but it did get the classic version back on the market P.D.Q. Coke is known for attracting and keeping talented managers largely, Goizueta believes, because the company offers upward as well as geographical mobility. The company is also an international powerhouse. In a soft year for soft drinks, Coke pushed hard worldwide and seized the market share lead from PepsiCo in Poland, Hungary, and Bulgaria. Even in tough times, these most admired folks are spending generously to improve operations and develop new products. Last year Merck raised its R&D budget 16%, to over $1.1 billion, and Rubbermaid, anchored in the top ten for eight years running, launched one new product every day, as always. Says Wolfgang Schmitt, Rubbermaid's chief operating officer, who took over from < Walter Williams as CEO in November: ''New products are a cause of our growth and define our culture.'' In a shopworn year for retailers, Wal-Mart opened more than 100 new stores, mainly in the recession-whipped regions of New England and California (for more about the company, see ''David Glass Won't Crack Under Fire''). Even as commercial jet orders hit their ten-year nadir in 1992, Boeing increased R&D spending 27%, to $1.8 billion. Most admired companies treat their employees exceptionally well, which is a factor in, and a result of, their success. Robert Haas, CEO of Levi Strauss Associates, thinks employee engagement and satisfaction are fundamental to running a strong business. Says he: ''You have to create an environment where everyone feels like a representative of the company. Unless you have people who know what you stand for and want to make every transaction the best, you're going to stub your toe.'' Haas walks his talk -- literally. Each year he spends the week before Christmas roaming the halls of the San Francisco headquarters, speaking individually with the 1,200 employees who work there. He thinks this kind of interaction helps ideas percolate up because employees know managers are accessible. Last year workers in the Albuquerque, New Mexico, factory hooked up with a local businessman to devise a way to recycle some of the millions of pounds of denim scraps Levi generates every year and which typically end up as landfill. The workers brought the idea to Levi headquarters, and today interoffice stationery is made of recycled denim, sparing landfill and cutting paper costs 18%. The memos are denim colored, of course. One company that knows a lot about tapping the talents of workers is Merck. CEO Roy Vagelos, a medical doctor, has personally recruited some of the brightest academic researchers to work in his labs. What draws strong candidates to Merck, he thinks, is the chance to work with other top scientists. Vagelos reports that recently the company has been hiring applicants who combine an MBA with an advanced degree in science. These hybrids bargain with those tough new drug customers, cost-conscious and well- trained HMO megabuyers. BY THE TIME companies earn the distinction of being least admired, they are frequently on their last legs. They stumble off as they are acquired or liquidated, and other sad sacks replace them at the bottom. On reputation skid row, Wang gets the booby prize, racking up its lowest score ever -- 1.99 out of a possible 10. In the history of the survey, the only company to fare worse was Financial Corp. of America, which garnered an abysmal 1.82 in 1989, just before it was liquidated. Wang, which has been operating under Chapter 11 since August, loses every way you cut it. On financial grounds the computer maker could be predicted to be least admired, with a negative ten-year return to shareholders and red ink running into the hundreds of millions. Newcomers to the bottom ten this year include Glenfed, the California thrift institution, and two apparel makers, Crystal Brands and Hartmarx. Bethlehem Steel backslid after rehabilitating itself and climbing out of the cellar in 1989. During the Eighties the company cut costs, increased productivity, improved the quality of its steel, and enhanced its reputation. But then it blew it all by losing $767 million in 1991. Of the folks in the cellar, all but LTV lost money that year -- between $38 million and $1.4 billion. Their long-term returns are dismal, and three are in bankruptcy. If it's any consolation, reputations can fluctuate wildly and fast. Says Iago, the villain in Shakespeare's Othello: ''Reputation is an idle and most false imposition; oft got without merit, and lost without deserving.'' Will that comfort IBM -- No. 1 in 1986 and now No. 206?

BOX: HOW IT WAS DONE

This Corporate Reputations Survey includes 311 companies in 32 industries that appeared in the 1992 FORTUNE 500 and FORTUNE Service 500 directories. Over 8,000 senior executives, outside directors, and financial analysts were asked to rate the ten largest companies in their own industry (or sometimes a shorter list) on eight attributes of reputation, using a scale of zero (poor) to ten (excellent). FORTUNE 500 companies are assigned to a group based on the activity that contributed most to their 1991 industrial sales; Service 500 companies to a group based on the activity contributing most to their service sales. In addition, the survey firm of Clark Martire & Bartolomeo examined the relationship between poll data and the financial performance of the companies, as published in the FORTUNE 500 and Service 500 directories. Twelve measures of performance were combined with the survey data into a spreadsheet. (Insurance companies were excluded because their data were incompatible.) A multiple regression was run to analyze the relationship between financial performance and the reputation score. The resulting equation was used to predict a reputation score based solely on financial performance.

CHART: NOT AVAILABLE CREDIT: NO CREDIT CAPTION: AT THE TOP AND BOTTOM OF 311 COMPANIES THE MOST ADMIRED The top three remain in place. Old-timers Morgan and Boeing -- the only companies that don't sell consumer goods -- return, replacing PepsiCo and Johnson & Johnson. THE LEAST ADMIRED Three of the folks on the wrong side of the reputation chasm are in bankruptcy. Bethelehem Steel returns to the cellar after clambering out.

CHART: NOT AVAILABLE CREDIT: NO CREDIT CAPTION: THE EIGHT KEY ATTRIBUTES OF REPUTATION QUALITY OF MANAGEMENT FINANCIAL SOUNDNESS QUALITY OF PRODUCTS OR SERVICES ABILITY TO ATTRACT, DEVELOP, AND KEEP TALENTED PEOPLE USE OF CORPORATE ASSETS VALUE AS LONG-TERM INVESTMENT INNOVATIVENESS COMMUNITY AND ENVIRONMENTAL RESPONSIBILITY

CHART: NOT AVAILABLE CREDIT: NO CREDIT CAPTION: WHAT THEY DID FOR SHAREHOLDERS Total return includes stock price changes and reinvested dividends. Companies marked N.A. were not public for the full decade. Impressive one-year gains for some least admired come off a low base.

MOST ADMIRED LEAST ADMIRED

CHART: NOT AVAILABLE CREDIT: NO CREDIT CAPTION: THE MOST ADMIRED. . . based only on financial performance If most admired companies were judged solely on financial criteria, like long- term return to shareholders, the top ten list would look like this.