A figure computing the amount earned by a person (or a business) as if the earnings took place over the course of a year. The process of annualization is used to make easier comparisons of financial events that take place over irregular periods of time (See: Annualize).
Annualization comes up a lot in calculating income. Salaried employees often get their wages reported as yearly amounts. For instance, a bank clerk's pay might get advertised as $45,000 a year. You'll rarely see a job posting giving that figure as $3,750 a month or as $173.08 a day. This allows for better comparison of items that might have complicating factors.
For instance, one job might have a lower hourly wage, but significant opportunity for overtime. Meanwhile, a second job might have an irregular schedule, say alternating shifts of three days one week and four days in the following week. Comparing the earnings from the two positions might be difficult on a weekly or monthly basis, but becomes easier when the figures are annualized.
Related or Semi-related Video
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.
Up Next
What is Earnings Per Share (EPS)? Earnings Per Share is a metric by which to measure the profitability of a public company as a result of how much...
What are Return on Equity and Return on Assets? Return on equity is a percentage that is found by dividing net income by shareholder’s equity. It...
What is real return? Real return is the actual return made from an investment after inflation is factored in. Return is expressed as a percentage c...
How do you calculate rates of return? Calculating rate of return on an investment that pays dividends can be a bit tricky. You need to look at the...