Run Rate


DEFINITION of 'Run Rate'

1. How the financial performance of a company would look if you were to extrapolate current results out over a certain period of time.

2. The average annual dilution from company stock option grants over the most recent three year period recorded in the annual report.


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In the context of extrapolating future performance (the first definition), the run rate helps to put the company's latest results in perspective. For example, if a company has revenues of $100 million in its latest quarter, the CEO might say: "Our latest quarter puts us at a $400 million run rate." All this is saying is that if the company were to perform at the same level for the next year, they'd have annual revenues of $400 million.

The run rate can be a very deceiving metric, especially in seasonal industries. A great example of this is a retailer after Christmas. Almost all retailers experience higher sales during the holiday season. It is very unlikely that the coming quarters will have sales as strong as in the 4th quarter, and so the run rate will likely overstate next year's revenue.

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  1. What are some of the limitations of run rates?

    Some limitations of a reliance on run rates include the occurrence of one-time sales, limitations on contracts, seasonality, ... Read Full Answer >>
  2. When do I need to project run rates for my business?

    A business might project a run rate if it needs to evaluate potential future outcomes. Common scenarios where a run rate ... Read Full Answer >>
  3. How do hedge funds use equity options?

    With the growth in the size and number of hedge funds over the past decade, the interest in how these funds go about generating ... Read Full Answer >>
  4. Can working capital be too high?

    A company's working capital ratio can be too high in the sense that an excessively high ratio is generally considered an ... Read Full Answer >>
  5. Can mutual funds invest in options and futures?

    Mutual funds invest in not only stocks and fixed-income securities but also options and futures. There exists a separate ... Read Full Answer >>
  6. How do I use discounted cash flow (DCF) to value stock?

    Discounted cash flow (DCF) analysis can be a very helpful tool for analysts and investors in equity valuation. It provides ... Read Full Answer >>

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