To annualize something is to convert it to a yearly, or annual basis. Basically, you are looking at something that takes place over an irregular period of time and standardizing it, providing a statistic that shows what would happen if you did that thing for a single year.
In finance, most information is reported on either a quarterly or annual basis. Standardizing reports in this way makes it easier to compare. Investors can see how one period of time stacks up against another. Along these lines, short-term events often get transferred into annualized rates for easier comparisons.
This comes up often in relation to interest rates, which are often given as annualized rates (See: Annualized Rates). Annualization also comes up often when reporting salaries and other income (See: Annualized Income).
Businesses often annualize their revenue and expenses so they get a better idea of the long-term impact of seemingly small decisions. If people did that, you might learn, for instance, that the number of burritos you eat in a year has reached 107, giving you an Annualized Rate Of Burrito Consumption (ARBC) of 29.32%. Based on this level of ARBC, you might decide that skipping Chipotle once and a while might be a good idea.
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Finance: What is an Annualized Return?36 Views
Finance, a la shmoop. What is an annualized return? Alright people, well
when you invest a dollar you hope or even expect to get more than a dollar [ATM machine]
back, at some point. And let's say you invested that dollar in Terminators
Closet -a leading dealer in cybernetic body enhancements. And it went from $1 a
share to a dollar ten six months later. Alright, nice return.
You made 10% in just six months but in most investing discussions ,investment [spreadsheet shown]
returns are discussed in the form of annual returns, not monthly or daily or
biannual numbers, so you need to convert your six-month return into an annualized [angelic glow]
one, and you can do the process here of computing that number that is if you made
10% in six months well then in a year presumably you could notion that you'd
have made 20%. It's not that you would have guaranteedly made 20% it's just [spreadsheet shown]
the math saying that well if you had compounded at that rate then you'd have
made 20%, so what if she made 10% in a month? Well the stock went from a buck a
share Jan 1 to a buck ten a share by Feb 1 .Well if you impute so that you can [calendar shown]
compute that month's gain of 10% would carry a compound rate of a hundred
twenty percent. Right ? You're multiplying 12 months times 10 there, that'd be
annualizing it meaning, that at that rate you are more than doubling your money on [spreadsheet shown]
an annualized return basis. And that's more than enough dough to keep
terminators closet popping out those Wi-Fi enabled contact lenses faster than [woman watches TV]
people can wear them.
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