What is Pro Rat?

Meaning of  Pro Rat

Pro Rata  is a Latin expression that has a sense of division, which can be loosely translated as something that is “  proportionally measured   ”.

This term is used in several areas of economics and finance, when a whole part is calculated in equal fractions, such as dividends, interest rates, insurance, among others.

It can also be used in other areas such as law or accounting, when some value must be provided. This is the case of salary payments proportional to the month worked, for example.

Pro Rat Temporis  and  Pro Rat Die

The expression  Pro Rat Temporis  has the meaning of something ”  proportional to time  “, that is, when a measurement must be made taking into account some period.

This is the case where the insurance premium must be measured, for example, in a shorter period than the contractual period. Also for the payment of a salary, which is monthly, proportional to the days worked.

The expression  Pro Rata Die  has the meaning of ”  proportional to the day  “, as in the case of charging interest expressed in daily values, of the type 0.5% per day, for example.

Proportional Interest Calculation

The calculation of proportional interest is used to define the payment of interest when contracting a service, or the receipt of interest on an investment.

In a simple way, this measurement can be done with the entire value, divided by whatever proportion is accurate. If an investment pays annual interest, the proportional interest can be calculated monthly or weekly, for example.

Calculation Example

If in a service the late payment interest is 0.8% per month, it is possible to calculate the interest for death of data pro by making:  0.8% / 30 days = 0.0267% per day  .

If a client is late in paying by 15 days, they must pay, in a late fee, the proportional 0.4% of the debt in question.

Dividend Pro Rata

When a company makes a profit, these values ​​must be divided among the partners and shareholders. This is a type of division, prorated, known as a dividend.

The distribution of profits is made according to the proportion that the investor has acquired as his share in the business.

Example

As an example, if the profit in a period is $100,000.00, and the company has in its domain a shareholder A with 50%, a shareholder B with 30% and a shareholder C with 20%:

Shareholder A receives 50% of 100,000.00 = $50,000.00  ;

Shareholder B receives 30% of 100,000.00 = $30,000.00  ;

Shareholder C receives 20% of 100,000.00 = $20,000.00  .