How to calculate run rates
A run rate is a projection that estimates how much a company will earn over a period of time. Usually, a company will take results from its first-quarter returns and estimate how well the company is projected to do over the rest of the year. Sometimes companies project for more than one year with that same data.
Take a sample number from your company's revenue filings. The larger the sample, the more accurate the run-rate projection will be, but run rates can be found with as little as one quarter's worth of revenues. For our example, a company's earnings in the first quarter are £1.3 million.
Project that sample over a year's worth of time. For example, if you are taking revenues from two quarters, you will multiply that number by 2 to get projections for a full year. If you are taking revenues from one quarter, you will multiply that number by 4 to get projections for a full year. In our example, since we took one quarter's worth of revenues, multiply that by 4 to get a total of £5 million. That is your one-year run rate.
- A run rate is a projection that estimates how much a company will earn over a period of time.
- If you are taking revenues from one quarter, you will multiply that number by 4 to get projections for a full year.
Multiply your run rate for however many years you want to project. If you just want to project the one year, use the number from Step 2 as your run rate. However, if you want to project your numbers for three years down the line, multiply your number by 3. In our example, the company's three-year run rate is £15 million.
- Run rates are not necessarily the best way to gauge the performance of a company. Other factors may muddle your numbers and not give an accurate representation for how the company will do in the future. For example, if the quarter you are projecting from is during the holiday season (when companies generally earn more money), your projection will most likely be higher than what the company will actually earn.
Rick Paulas is a freelance writer based out of Los Angeles. He has been writing professionally since 2005. He has previously written for "McSweeney's," ESPN.com, "Vice Magazine" and "Radar Magazine," and has worked as an editor for "The Coming," "Duct Tape & Rouge," and "TSB Magazine." Paulas holds a Bachelor of Arts in telecommunications and advertising from Michigan State University.