How to Calculate Pro Rata Allotment of Shares

function calculateAllotment() { var totalIssued = parseFloat(document.getElementById('totalIssuedShares').value); var totalSubscribed = parseFloat(document.getElementById('totalSubscribedShares').value); var myBid = parseFloat(document.getElementById('individualBid').value); var errorDiv = document.getElementById('errorMsg'); var resultDiv = document.getElementById('result-area'); // Reset display errorDiv.style.display = 'none'; resultDiv.style.display = 'none'; errorDiv.innerHTML = ""; // Validation if (isNaN(totalIssued) || isNaN(totalSubscribed) || isNaN(myBid)) { errorDiv.innerHTML = "Please enter valid numbers in all fields."; errorDiv.style.display = 'block'; return; } if (totalIssued <= 0 || totalSubscribed <= 0 || myBid <= 0) { errorDiv.innerHTML = "Values must be greater than zero."; errorDiv.style.display = 'block'; return; } // Calculation Logic var allottedShares = 0; var ratioText = ""; var statusText = ""; var probability = ""; // Scenario 1: Undersubscription or Full Subscription (Everyone gets what they asked for) if (totalSubscribed myBid) { allottedShares = myBid; } var unallotted = myBid – allottedShares; // Update UI document.getElementById('subStatus').innerHTML = statusText; document.getElementById('subRatio').innerHTML = ratioText; document.getElementById('allotProb').innerHTML = probability; document.getElementById('sharesAllotted').innerHTML = allottedShares + " Shares"; document.getElementById('sharesRefunded').innerHTML = unallotted + " Shares"; resultDiv.style.display = 'block'; }

How to Calculate Pro Rata Allotment of Shares

Pro rata allotment creates a confusing scenario for many investors participating in Initial Public Offerings (IPOs) or Rights Issues. When a share offering is oversubscribed—meaning the demand from investors exceeds the actual number of shares available—companies often utilize a "pro rata" mechanism to distribute the shares fairly among applicants.

Instead of a lottery system where some get everything and others get nothing, pro rata allotment ensures that applicants receive a portion of the shares they applied for, proportional to the total demand.

The Pro Rata Formula

The calculation is based on the ratio of total shares available to the total shares applied for. The basic formula used in the calculator above is:

Allotted Shares = (Total Shares Offered ÷ Total Shares Subscribed) × Your Applied Quantity

Note on Rounding: Since fractional shares typically cannot be issued in standard equity markets, the resulting figure is usually rounded down to the nearest integer. The remaining fraction is disregarded, and the money for those unallotted shares is refunded.

Example Calculation

Imagine a company, TechCorp, issues an IPO:

• Total Shares Offered: 1,000,000 shares
• Total Bids Received: 5,000,000 shares

This issue is oversubscribed by 5 times. The allocation ratio is 1:5 (or 20%).

If you applied for 500 shares, the calculation would be:

(1,000,000 ÷ 5,000,000) × 500 = 0.2 × 500 = 100 Shares.

You would receive 100 shares, and the application money for the remaining 400 shares would be refunded to your bank account.

Why Pro Rata Matters for Investors

Understanding this calculation helps investors manage their capital more efficiently. In a heavily oversubscribed IPO, locking up a large amount of capital might yield a very small allotment. By calculating the expected pro rata ratio based on current subscription data (often available on stock exchange websites), investors can gauge whether the potential allotment justifies the capital blocked during the application period.

Key Terms

• Oversubscription: When total bids exceed the issue size.
• Basis of Allotment: The official document released by the registrar detailing how shares are divided among different categories of investors.
• Lot Size: The minimum number of shares you can apply for.