Our litigation support and services also includes standard lost profits analysis to document and classify relevant economic damage. Examples of business losses could include, but are not limited to: contract disputes, construction claims, product liability claims, trademark and patent infringements, and losses stemming from a breach of a non-competition agreement.
Calculating the estimated damages can be very difficult. That is where we come in. The calculation of damages requires estimates and assumptions. Let’s say, for example, something has happened, and a company or individual is claiming that there are lost profits because of it. We could never know with complete certainty what revenue or profits would have been if that incident or action had not taken place. Mathematical precision is not possible. Thus, we, as the forensic accountant, must make certain estimates in order to calculate damages.
Typically, we are required by the courts to use accepted methods and principles for calculating damages. The most common methods for calculating damages include the following (or some combination of the following):
Calculating the estimated damages can be very difficult. That is where we come in. The calculation of damages requires estimates and assumptions. Let’s say, for example, something has happened, and a company or individual is claiming that there are lost profits because of it. We could never know with complete certainty what revenue or profits would have been if that incident or action had not taken place. Mathematical precision is not possible. Thus, we, as the forensic accountant, must make certain estimates in order to calculate damages.
Typically, we are required by the courts to use accepted methods and principles for calculating damages. The most common methods for calculating damages include the following (or some combination of the following):
- Yardstick Method ~ This method is also sometimes called the benchmark method. It uses a “yardstick” to determine what the revenues and profits would have been if the situation had not occurred. For example, historical revenues and profits might be the yardstick against which revenues and profits for the damage period are compared to calculate the loss. Budgets or projections may also be a yardstick used by an expert, although the reliability of these figures may be called into question. Industry averages are another common yardstick used by expert witnesses.
- Before and After Method ~ Damages are calculated with this method by comparing revenue and profits before the situation to the revenue and profits after. This method is often used when the damaged company has a sufficient operating history to use as a basis for estimating revenues and profits.
- But For Method ~ This method can also be called the sale projection method, as it relies on projections or forecasts of sales absent the alleged bad acts. What would sales have been “but for” the defendant’s actions? This figure is then compared to actual results for the same period.