Definition Definition

What Is Pro-rata Share & How to Calculate Pro-rata Share with Practical Example

What is Pro-Rata Share?

Pro-rata Share refers to shares has been used to provide or distribute valuation in ratio which is evaluated or determined properly. “Pro-rata” is a Latin phrase meaning "in proportion" and  commonly known as "prorated".

It determines dividing anything in parts. These shares should not imply that all components are similar but the fact that every single share is valued with relation to the rest. It's especially beneficial when the final amount of that is challenging to identify on its own but could be simply given a proportional rate compared to another one.

Understanding Pro-Rata Share

In most cases, pro rata indicates that every entity or individual gets their significant number in ratios. For example, investment returns which are cash inflows made by firms to investors, might be calculated using pro rata formulas in various ways. This even involves the capacity to prorate, which comes in handy while distributing or reallocating numeric values between (even smaller) quantities or portions.

In insurance, the use of pro-rata can be implemented to show the rate of charges associated with coverage which only includes a portion of the contract. For example, pro rata method may be used to allocate the percent market share of an average return on time.

The purchasing and distributing of products or goods might be time-sensitive. The corporations in charge of them became the principal operators of the pro-rata share formula for price allocation. The distribution of regularly revised debts is an indication of pro-rata application. Nevertheless, when the borrower pays off, the number of loan repayments disbursed among the main installment and the amount owed for the debt changes each period.

How to Calculate Pro-rata Share?

The formula of calculating the pro-rata share is-


Per Share Dividend = Total Dividend Amount / Total Number of Outstanding Shares


Practical Example

In insurance plans with a conditional contract, pro-rata share is mostly used to calculate premium fees. A company named Fierce Limited declares a dividend payout of $800,000 on its stock. Every payout is prorated to $4 if the corporation holds 200,000 market shares.

The dividend calculation is done through using data presented by the pro-rata share formula:

800,000 / 200,000 = $4 per share

In Sentences

  • The term pro-rata share is commonly used in businesses, corporations, and share markets to distribute value in ratio.


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