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Lost Profits: An Expert Witness' Calculations

The wrongful actions of a defending party are what cause the plaintiff to seek economic damages when he or she has suffered. This recovery of monetary compensation is usually calculated by a forensic accounting or business valuation professional with extensive field experience in calculating these damages to if the case is successful compensation may be awarded in a reasonable amount for the factors considered in the judgment.

Quantifying the losses, understanding economic damages and how they apply are the duty of an expert lost profits witness. When litigation occurs, it is best one of these professionals has been retained by the lawyer for a better chance of the best possible compensation settlements and to win the case.

Calculating lost profits is usually applied through a formula or equation based on certain elements. Experts in damages subtract the actual profits from general profits that have been understood as part of the harmful event. Some avoided expenses which are incremental costs the victim did not incur when revenue was lost are applied. Interest must be calculated as well as any necessary discounts to projected profits that are lost by these damage expert witnesses. Calculating these lost profits usually demands analyzing all the factors involved, translating
them to numbers for the sake of the mathematical methods and then altering them to real life situations so that a judge or jury may comprehend which amounts are used for the economic damage caused by the perpetrator.

Connection of the Cause

When the victim is attempting to recover damages for the harm caused, he or she must show the proximate cause involved. This is the act where some type of injury lead to expected, direct, constant consequences. Without these factors, the injury would not have occurred in the first place. After the connection to the cause of the harm is established, the losses that he or she sustained in the incident must be quantified. The expert witness used then isolates the loss that transpired through the activity of the defending party. Unrelated factors may affect the outcome due to how they may have caused the earning loss. Certain economic conditions, trends in industry, pricing of commodities, seasonal changes, competition and even natural disasters may all cause negative impacts to the financial performance and ability to garner revenue.

Period of Loss

The expert in damages must though evidence or documentation determine the time frame or period the damages were incurred to the person or entity. Typically, this occurs at or after the harmful event with the end of this period of loss varying greatly. Breach of contract incidents may measure these dates when the company returns to normal levels that are considered customary, but this may be the end of the contract term. If there was a contract renewal, this may pose a problem in measuring loss periods. This is because these renewals may occur with frequency, and extensions to contracts may be in effect as well.
When there is potential litigation involved, this loss period may be measured through dates a company is able to return to customary levels with a determined period that is foreseeable. The longer this timeframe, the greater risk there is that damages will not meet tests. This may also mean that damages may not be awarded as courts are reluctant to do so in these circumstances. Restoral to normal business functions is usually when the company has returned to normal levels. This could be compared to levels from before the incident or what may have been anticipated with alternate causes in effect.

Certainty in Damages

Experts in calculating lost profits are not expected to have a precise calculation in economic damages, but they are required to prove that these damages are related to a loss in profits that is reasonable and calculated through reliable factors that may withstand scrutiny and avoid speculation. The facts of the case should be an applying factor in determining the damages that affect the person or business in the situation as is the responsibility of the lawyer and damages expert. Reasonable certainty in what may establish the number or methods used to provide an amount that may be calculated repeatedly to near approximate amounts is necessary.

The Expert Witness

When damages must be calculated for a case where profits were lost, a damages professional is often contacted for assistance. While these individuals may process calculations for the company, they are usually retained for a case with a lawyer and are called in court to testify to their findings. The use of these experts often increases chances of success and provides detail into data that is often confusing.

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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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