Annualize

To annualize means to extend a result to a full-year basis. For example, if a business earns $10,000 over a period of three months, the $10,000 is multiplied by four to arrive at $40,000, which is presumed to be the result that the business would achieve over four quarters.

The annualization concept works best when the baseline period is already a large fraction of a year (such as nine months), since there is little remaining time over which the result can differ from historical results. Conversely, annualizing over quite a short period of time presents a risk that the results actually achieved over the remainder of the year could differ substantially from the initial annualized estimate. This is a particular problem when there is no history of results in prior years, since there is no way to tell if the results actually obtained will have a discernible trend or be seasonal.