Don't Be Deceived by Run Rate Predictions

A run rate prediction is a type of prediction that is done by calculating long-term performance of a company based on short-term performance. For example, the company will look at the results from the past quarter and then multiply those results by four. This is done so that they can say this is how much money the company would make over the course of an entire year at this rate. This type of prediction is commonly used in order to please investors in a particular stock.

Although this is a very simple way to make a prediction, it does not usually work. These predictions can be very misleading, so you do not want to put too much faith into them. For example, many companies benefit from seasonal success. If a company is a retailer, they are going to sell the vast majority of their products during the Christmas season. If you try to extrapolate the results from the fourth quarter through the rest of the year, you would be vastly over-projecting sales.

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