Damages & Loss Profit Calculations

Commercial litigation cases frequently involve claims for damages measured as lost profits or loss of business value. Such economic damages can occur in many different types of commercial litigation cases, including contract disputes, intellectual property infringement, business torts, unfair competition, and negligence claims. In commercial litigation, valuation professionals are often engaged as an expert to provide an opinion on the calculation of economic damages suffered by an alleged injured party. Economic damages are meant to return the plaintiff back to his/her financial position that the plaintiff would have been in, “but for” the defendant’s alleged harmful acts. In an economic damages calculation, the two typical methods used are either a lost profit or lost business value computation. When the alleged damage is for a finite period of time and is related to a separate identifiable cash flow, a lost profits approach is generally the appropriate method to use. This approach represents the difference between profits the plaintiff would have achieved, “but for” the harmful event, and profits actually attained. A lost profits analysis is commonly employed in breach of contract, intellectual property, and general commercial litigation cases. In situations where the loss of earnings is considered or assumed to be permanent and into perpetuity, or where a business is destroyed completely, a lost business value approach is generally appropriate. This approach is typically applied in business destruction, shareholder oppression, and dissenting shareholder cases.

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