What is the formula for determining run rate?

What is the formula for determining run rate?

• A. Current revenue for one month x 12
• B. Current revenue for one month + 12
• C. Current revenue for one month / 12
• D. Current revenue for one month - 12

Answer: (A)

Run rate is about annualizing the current period’s performance. If you know the revenue for one month, the simplest way to project yearly revenue is to assume that month’s revenue stays the same every month and multiply by 12. That gives the annualized run rate: monthly revenue × 12. The other operations don’t produce an annual projection—adding twelve, dividing by twelve, or subtracting twelve wouldn’t reflect projecting a year’s worth of revenue from one month.

Run rate is about annualizing the current period’s performance. If you know the revenue for one month, the simplest way to project yearly revenue is to assume that month’s revenue stays the same every month and multiply by 12. That gives the annualized run rate: monthly revenue × 12. The other operations don’t produce an annual projection—adding twelve, dividing by twelve, or subtracting twelve wouldn’t reflect projecting a year’s worth of revenue from one month.