when a number is annualized the short term performance or result is used to forecast the performance for the next twelve months or one year below are a few of the most common examples of when annualizing is utilized 
an annualized return is similar to a run rate which refers to the financial performance of a company based on current financial information as a predictor of future performance the run rate functions as an extrapolation of current financial performance and assumes that current conditions will continue the annualized cost of loan products is often expressed as an annual percentage rate apr the apr considers every cost associated with the loan such as interest and origination fees and converts the total of these costs to an annual rate that is a percentage of the amount borrowed loan rates for short term borrowings can be annualized as well loan products including payday loans and title loans charge a flat finance fee such as 15 or 20 to borrow a nominal amount for a few weeks to a month on the surface the 20 fee for one month doesn t appear to be exorbitant however annualizing the number equates to 240 and could be extremely large relative to the loan amount to annualize a number multiply the shorter term rate of return by the number of periods that make up one year one month s return would be multiplied by 12 months while one quarter s return by four quarters taxpayers annualize by converting a tax period of less than one year into an annual period the conversion helps wage earners establish an effective tax plan and manage any tax implications for example taxpayers can multiply their monthly income by 12 months to determine their annualized income annualizing income can help taxpayers estimate their effective tax rate based on the calculation and can be helpful in budgeting their quarterly taxes example investmentsinvestments are annualized frequently let s say a stock returned 1 in one month in capital gains on a simple not compounding basis the annualized rate of return would be equal to 12 because there are 12 months in one year in other words you multiply the shorter term rate of return by the number of periods that make up one year a monthly return would be multiplied by 12 months however let s say an investment returned 1 in one week to annualize the return we d multiply the 1 by the number of weeks in one year or 52 weeks the annualized return would be 52 quarterly rates of return are often annualized for comparative purposes a stock or bond might return 5 in q1 we could annualize the return by multiplying 5 by the number of periods or quarters in a year the investment would have an annualized return of 20 because there are four quarters in one year or 5 4 20 limitations of annualizingthe annualized rate of return or forecast is not guaranteed and can change due to outside factors and market conditions consider an investment that returns 1 in one month the security would return 12 on an annualized basis however the annualized return of a stock cannot be forecasted with a high degree of certainty using the stock s short term performance there are many factors that could impact a stock s price throughout the year such as market volatility the company s financial performance and macroeconomic conditions as a result fluctuations in the stock price would make the original annualized forecast incorrect for example a stock might return 1 in month one and return 3 the following month 