what is the main limitation of annualizing 
the primary drawback of annualizing a return is that it can change over time due to outside factors and market conditions stock market volatility a company s financial performance and macroeconomic conditions can all significantly impact yearly returns the bottom lineannualize refers to converting a short term number such as an investment return or interest rate into an annual rate a number is annualized by multiplying the short term figure by the number of periods that make up one year investors and lenders typically annualize a return to forecast an investment s 12 month performance or a loan s annual costs helping to make comparisons and manage risk annualizing figures can also help investors to measure a company s performance metrics and assist taxpayers in establishing an effective tax plan investors should keep in mind that annualized figures can change due to shifting conditions over a 12 month period 