Pro Rata

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Definition of 'Pro Rata'

Pro Rata is a Latin phrase that means "in proportion". In financial terms, it refers to the distribution of a sum of money or assets in proportion to the shares held by each party. For example, if two people own a business together and one of them dies, the surviving owner would receive 100% of the business's assets. However, if there were three owners, the surviving owner would receive 2/3 of the assets and the other two owners would each receive 1/3 of the assets.

Pro Rata is often used in the context of mergers and acquisitions. When two companies merge, their assets and liabilities are combined and then divided up among the shareholders of the new company. The shareholders of each company receive a pro rata share of the new company's assets and liabilities, based on the percentage of shares they held in their original company.

Pro Rata can also be used in the context of debt repayment. If a company has multiple creditors, the repayment of its debt may be structured on a pro rata basis. This means that each creditor will receive a pro rata share of the company's payments, regardless of the size of their debt.

Pro Rata is a useful concept for understanding how assets and liabilities are distributed in a variety of financial transactions. It is important to understand how Pro Rata works in order to make informed decisions about financial investments.

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