Run Rate

Run Rate

The estimation of future financial data that assumes present trends continue. For example, if a company earns $1 million in a month, it may announce $12 million estimated annual earnings according to the run rate. This can be very inaccurate, particularly if a company's performance is seasonal.

---

Run Rate

What Does Run Rate Mean?

(1) How the financial performance of a company would look if one extrapolated current results out over a certain period. (2) The average annual dilution from company stock option grants over the most recent three-year period recorded in the annual report.

Investopedia explains Run Rate

In the context of extrapolating future performance, the run rate helps put a company's latest results in perspective. For example, if a company has revenues of $100 million in its latest quarter, the CEO may say: “Our latest quarter puts us at a $400 million run rate.” All this is saying is that if the company performed at the same level the next year, it would have annual revenues of $400 million. The run rate can be a very deceiving metric, especially in seasonal industries. A good example of this is a retailer after the holiday season. Almost all retailers experience higher sales during this time of year. It is very unlikely that the coming quarters will have sales as strong as those in the fourth quarter, and so the run rate probably will overstate the next year's revenue.

Related Terms:
• Annual Percentage Yield—APY
• Cash Flow Statement
• Fundamental Analysis
• Pro Forma
• Trend Analysis