UK Accounting Glossary
To annualize is to take an item measured for a period other than one year and compute what it would be for a single year. Although it’s possible to annualize numbers for periods longer than one year, usually the items to annualize are for periods of 12 months or less. For example, if managers annualize a production level of 30,000 units per quarter, it becomes 120,000 units a year. Or if company accountants annualize a salary of $3,000 a month, it becomes $36,000 a year. The effort to annualize data has drawbacks: it doesn’t take into account seasonal variations or any volatility in a number during the year. Note that to annualize a figure is not to compound it, e.g., interest on an investment posted each month would not be assumed to be reinvested. Also, to annualize an interest rate on a loan is not the same as computing its annual percentage rate, which is often based on many factors.
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This glossary post was last updated: 4th February 2020.