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Expert Witness Uses Formulas to Evaluate Lost Profits

There are times when a company loses profits through an incident caused by an individual. This often leads to injury to the company or someone specifics that either owns the business or works inside.

The concern that may arise is often injurious enough that litigation occurs to recover damages. In these instances, it is often beneficial to hire an expert witness to assist in explaining to the judge or jury how the loss in profits affects the business negatively which may lead to a loss of jobs and other negative consequences. While a business lawyer is absolutely necessary in these instances, it is best to also obtain an expert witness that understands lost profits and how to evaluate them.

Some injuries to a company are caused by other businesses. In these events, litigation is almost always the result as the amount of damages needed to recover could be in the billions. This could be through violations of trademark or copyright laws, an infringement on patents, plagiarism of some form and even outright blatant actions against the company. Any of these acts could negatively impact an organization so that profits are lost for a time until there is enough effort put for to resolve the matter. However, during the recovery, many customers or clients may not purchase or invest until the damage has been reversed.

Analysis for Lost Profits

Economic damages are usually explained as lost profits when involved in litigation. This means that an analysis is completed by an accountant to show an estimated loss caused by the defending party due to wrongful or illegal conduct. Damages that are requested through compensation must be shown to be due to the behavior of the person that caused the incident with an estimated amount based on the damage and that the negative impact caused by the individual was foreseeable due to the actions completed. This may take some time, as in certain situations the profits lost may be in the millions or billions.

When estimating the amount of damages that should be provided by the defending party, it is the gross revenue that should have accrued when the conduct occurred which caused the economic injury. Any costs that could have been avoided are subtracted from this number. The only monetary amount affected in these circumstances is that which would have been received during the loss period. This means that once the revenue stabilizes due to actions taken by the company, the amount of compensation is no longer increasing. This time period is often what stirs conflict and time taken to determine the exact dates.

Calculation Methods

There are often two methods employed to determine the profits lost due to the incident. The lost revenue should be determined first, and then the costs of discovering what caused the loss are subtracted from this number. This could be accomplished through number provided before the problem occurred and comparing those with after the incident and when the loss stabilized. Another method is to analyze the contract details. It is possible to calculate through examination of profits over a period of time as well. Some processes are determined by case law, but others may be due to the state or local regulations.

The Need for an Expert Witness

When there are economic injuries to a company, litigation is usually the end result before compensation is received for a successful case. However, before there is a positive outcome, an expert witness is usually necessary to calculate the cost estimation, gross revenue and the loss of profits during the down period caused by the misconduct of the defending party. This is accomplished by the various methods provided or permitted in the state or local area where the lawsuit occurs. However, the amount may be discovered with other means and applied to the methods available. This is usually found through deducting revenues from the lost profits which are also affected by hiring assistance to calculate the total that should be received.

These numbers are complicated to determine due to the downtime considered, the estimated revenue that should be accruing based on projections and other factors that may not exist. These calculations are only a possible, as there may be other elements introduced that could cause profit loss during the period, but they cannot be presented due to the economic injury sustained. However, with the experience an expert witness has with these processes, methods and calculations he or she is able to construct a viable and valid scenario for damages that should be obtained from the defending party.

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Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer.

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