Annualizing a financial figure means taking an amount for a period less than one year and extending it to project it's total after one year. This technique is used in financial analysis as a useful way to estimate annual figures. Annualizing works under the assumption that the figures for the period used will occur for every other similar period throughout the year. As long as this assumption is true, the estimate calculated will be fairly accurate.
Determine the financial figure and the applicable period to be annualized. For example, The Flying Tutus Co. sells 1,000 ballet tutus during one month. The sales figure is 1,000, while the applicable period is one month.
Adjust the time period to reflect one year. Divide 12, the number of months in one year, by one month; the result is 12. Regardless of whether the applicable time period is per month, week or other timeframe, always divide the one year time period by the applicable time period that relates to the financial figure; for example, to adjust the time period to annualize a 3-week sales figure -- divide 52 weeks in a year by three weeks.
Annualize the sales figure by multiplying the sales figure by the same amount you multiplies the time period.
Adjust the annualized figure, if actual results vary. For example, assume a slowdown in sales occurred and it actually took six weeks, instead of one month, to sell 1,000 tutus. Follow the previous steps and re-compute the annualized sales figure.
Eileen Rojas holds a bachelor's and master's degree in accounting from Florida International University. She has more than 10 years of combined experience in auditing, accounting, financial analysis and business writing.