What is 'ProRata'
Pro rata is the term used to describe a proportionate allocation. It is a method of assigning an amount to a fraction according to its share of the whole. While a pro rata calculation can be used to determine the appropriate portions of any given whole, it is most commonly used in business finance.
BREAKING DOWN 'ProRata'
Some of the most common uses for pro rata calculations are to determine dividend payments due to shareholders, to determine the amount of premium due for an insurance policy that only covered a partial term, or to allocate the appropriate portion of an annual interest rate to a shorter time frame.
Dividends
When a company pays dividends to its shareholders, each investor is paid according to his holding. If a company has 100 shares outstanding, for example, and issues a dividend of $2 per share, the total amount of dividends paid will be $200. No matter how many shareholders there are, the total dividend payments cannot exceed this limit. In this case, $200 is the whole, and the pro rata calculation must be used to determine the appropriate portion of that whole due to each shareholder.
Assume there are only four shareholders holding 50, 25, 15 and 10 shares. The amount due to each shareholder is his pro rata share. This is calculated by simply dividing the ownership of each person by the total number of shares and then multiplying the resulting fraction by the total amount of the dividend payment.
The majority shareholder's portion, therefore, is 50/100 x $200, or $100. This makes sense because he owns half the shares and receives half the total dividends. The remaining shareholders get $50, $30 and $20 respectively.
Insurance Premium
Another common use is to determine the amount due for a partial insurance policy term. Most insurance policies are based on a full 12month year, so if a policy is needed for a shorter term, the insurance company must pro rate the annual premium to determine what is owed. To do this, simply divide the total premium by the number of days in a standard term, and multiply by the number of days covered by the truncated policy.
For example, assume an auto policy that typically covers a full year carries a premium of $1,000. If the insured only requires the policy for 270 days, then the company must reduce the premium accordingly. The pro rata premium due for this period is $1,000/365 x 270, or $739.73.
Interest Rates
Pro rata calculations are also used to determine the amount of interest that will be earned on an investment. If an investment earns an annual interest rate, then the pro rata amount earned for a shorter period is calculated by dividing the total amount of interest by the number of months in a year and multiplying by the number of months in the truncated period. The amount of interest earned in two months on an investment that yields 10% interest each year is 10%/12 x 2, or 1.67%.

Concurrent Insurance
Two or more insurance policies that provide coverage for the ... 
Annual Dividend  Insurance
In the insurance industry, a yearly payment given by an insurance ... 
Earned Premium
The amount of total premiums collected by an insurance company ... 
Written Premium
An accounting term in the insurance business used to describe ... 
Dividend
A distribution of a portion of a company's earnings, decided ... 
Indicated Yield
The dividend yield that a share of stock would return based on ...

Insurance
DividendPaying Whole Life Insurance: What to Know
Many whole life insurance policies pay dividends. Here are what policyholders need to consider. 
Fundamental Analysis
Valuation Of A Preferred Stock
Determining the value of a preferred stock is important for your portfolio. Learn how it's done. 
Investing Basics
Dividend Facts You May Not Know
Discover the issues that complicate these payouts for investors. 
Markets
Due Diligence On Dividends
Understanding dividends and how they work will help you become a more informed and successful investor. 
Investing Basics
How Dividends Affect Stock Prices
Find out how dividends affect the price of the underlying stock, the role of market psychology and how to predict price changes after dividend declaration. 
Options & Futures
Permanent Life Policies: Whole Vs. Universal
If you're looking for lifelong security, choosing between these two is the key. 
Investing Basics
4 Reasons a Company Might Suspend Its Dividend
Learn about the four most common reasons a company may choose to suspends its dividends, including financial trouble, funding growth and unexpected expenses. 
Stock Analysis
Forget 10% Yields  This Is Even Better
When it comes to beating the market, dividends have always reigned supreme. If you'd invested $100,000 in the S&P 500 back in 1982, it would have been worth $2.3 million by the end of ... 
Investing
Advising FAs: Explaining Life Insurance to a Client
Life insurance was initially designed to protect the income of families, particularly young families in the wealth accumulation phase, in the event of the head of household's death. 
Insurance
How Whole Life Insurance Works
Whole life insurance combines insurance and an investment component for policyholders.

I have an IRA with aftertax money in it. How do I avoid being taxed again?
... Read Answer >> 
Can I receive dividends on ordinary shares of a company?
Understand the basics of collecting dividend payments on ordinary shares, including when dividends can be paid and under ... Read Answer >> 
What is a dividend?
When a company makes a profit and decides not to reinvest the profit in the business, it can pay out a portion to each of ... Read Answer >> 
How does the bottom line affect shareholder returns?
Understand the two factors that cause the bottom line of a company to affect the returns to its shareholders. Learn how a ... Read Answer >> 
What are pro forma earnings?
Great question, but it is not easily answered, because pro forma earnings figures are inherently different for different ... Read Answer >> 
Does a stock dividend dilute the price per share as would a forward stock split?
Every corporation has the same goal in mind: to maximize shareholder wealth. This goal is fulfilled in two different ways, ... Read Answer >>