A common shortcut for projecting current performance to a longer period. Useful for quick estimates and conversation, dangerous if treated as forecast. Always sanity-check before acting on a run rate number.
Definition
Financial Run Rate - an extrapolation of current short-period performance to a longer period - typically "current monthly figure × 12" to produce an annual run rate.
Common uses
- Quick projections - what does the current pace imply annually?
- Investor conversations - the standard way to talk about "where the business is right now"
- Board updates - run rate vs prior period or vs target
Watch out
Run rate assumes nothing changes - which is rarely true. Watch for seasonality, big one-off deals, holiday effects, and known upcoming changes. A run rate based on an unusual month produces an unusual number.