(FORTUNE Magazine) – They're back. After three years of bad news, the world's 500 largest companies rebounded with a vengeance, posting their highest profits and revenues ever. Even with a war in Iraq, a jobless recovery in the U.S., and anemic economic growth in Europe, the FORTUNE Global 500 companies reported revenues last year of $14.9 trillion--higher than the $14.1 trillion at the height of the tech boom in 2000--as well as record profits of $731.2 billion.

Leading the pack were the oil giants, whose profits soared as oil prices reached their highest average annual levels in two decades. Britain's BP saw its revenues jump 30%, to $232.6 billion, catapulting it to the No. 2 spot on the list behind Wal-Mart and overtaking U.S. rival Exxon Mobil as the world's largest petroleum company, measured by sales.

"Last year was a classic case of the power of low expectations," says Stuart Schweitzer, a strategist at J.P. Morgan Fleming Asset Management in New York City. "After worrying that the world might be headed to Japan-type deflation, companies responded aggressively by restructuring and cutting back on spending. That set the stage for good news."

The results for 2003 were the best since FORTUNE began publishing a combined list of the world's 500 largest service and industrial corporations in 1995. This year marks the tenth time the list has been published, and in that period total revenues of the top 500 companies has increased by 45%, profits have nearly tripled, and employment has jumped by 11 million.

The decade's biggest winner? The U.S. Ten years ago it had 151 companies on the list, accounting for 29% of the Global 500's total revenues; this year the 189 U.S. companies on the list accounted for 39% of the revenues. Over the same period, the number of Japanese companies dropped from 149 to 82, while the number of Chinese companies rose from three to 15.

Last year's good corporate news was a reflection of a global economic recovery. Interest rates stayed low, the Japanese economy showed signs of revival, China sizzled, consumers kept spending, and stock markets gained. The Dow Jones world stock index rose 33%, the best return since the index was founded in 1992.

U.S. companies led the Global 500's recovery. For the third year in a row, Wal-Mart was No. 1. The Arkansas company posted revenue of $263 billion, up 7% from a year earlier. It increased profits by 13% and hired 100,000 more people, reaching 1.5 million employees. But while Wal-Mart may be the world's biggest company, it is not the biggest moneymaker. Not counting MCI (No. 168)--which emerged from bankruptcy last year with a paper profit of $22.2 billion--Exxon Mobil was the world's most profitable company in 2003, posting net earnings of $21.5 billion, almost twice the profits of the previous year. Citigroup was next, with $17.9 billion in net earnings, up 17% from a year earlier, followed by General Electric, which reported profits of $15 billion.

Outside the U.S., the biggest losers were the Japanese trading behemoths--companies such as Mitsubishi, Mitsui, and Itochu, which were the top three companies on FORTUNE's 1995 list. None of those three remain anywhere near the top, and all of the trading companies have tumbled as a result of new accounting rules that significantly lowered their revenues (see "Trading Places"). Still, last year was the best year Japan has had in a while, with companies posting profits after two years of losses. Leading the way was Toyota Motor (No. 8), whose earnings jumped 67%, making it the world's most profitable automaker.

Europe's performance was less impressive. Its economy grew by just 0.8% last year (compared with 3.1% in the U.S. and 2.5% in Japan). Big stalwarts such as French oil company Total (No. 10) and German insurer Allianz (No. 11) increased revenues by double-digit percentages. But the number of German, French, and Italian companies on the list dwindled, continuing a trend that has been going on for the past decade.

In the developing world China stood out. Though overall revenues and profits remain low, the Chinese companies on the global list increased revenues by 53% last year, to $358.3 billion. Newcomer Shanghai Automotive (No. 461) saw its profits jump 150%, and Sinopec (No. 53), the state-owned oil company, had a 135% earnings increase. Shanghai Baosteel (No. 372), another newcomer, reported revenues growth of 55%.

When it comes to changes in the world economy, the Global 500 reflects them pretty well. Although the U.S. will probably remain the world's economic engine, companies in the developing world are coming on fast. Expect that trend to continue.