What is a Run Rate?

[Niks]

Hello
Essentially, a run rate involves defining recent performance as a means of projecting the anticipated future performances associated with upcoming time periods of the same duration. Intrinsic to the formula of a run rate is making an assumption that the business can be expected to continue performing at the same level as the current period. For example, if the semi-annual financial report indicates a company made a net profit of ten million dollars during the first six months of the year, it could be said that the company is functioning at an annual run rate of twenty million dollars.

The basic structure of the run rate is very simple, and does not take into account a number of variables that could impact a company’s performance. First, a run rate does not take into consideration seasonal changes in consumer demands. This can be especially true for retail businesses, where specific times of the calendar year are well known to generate higher levels of revenue than others.

Thanks

[Niks]

Hello
The basic structure of the run rate is very simple, and does not take into account a number of variables that could impact a company’s performance. First, a run rate does not take into consideration seasonal changes in consumer demands. This can be especially true for retail businesses, where specific times of the calendar year are well known to generate higher levels of revenue than others.

Second, a run rate does not consider such factors as changes in the marketplace. Technology that is cutting edge today could be obsolete within a year, thus impacting the bottom line of a company that has continued to produce the older technology and is experiencing a reduced market share as a result. Last, a run rate does not take into account political changes, and how that factor can impact consumer confidence and thus change the demand for goods and services.

Thanks