Lost profits calculations project revenue and subtract avoided costs to determine net loss. Methods include before-and-after comparison, yardstick comparison to similar businesses, and market share analysis.
Reasonable certainty is the required standard.
Alternative Names:
Lost Profits Calculation, Business Loss Analysis
Why it Matters?
Avoided costs are frequently understated, since a business that did not perform the lost work also did not incur the variable costs of performing it, and plaintiff calculations sometimes deduct only direct materials. Requiring a full incremental cost analysis addresses that. The new business rule also bars or limits recovery in several states where the enterprise has no operating history from which to project.
Frequently Confused with
Related terms
Frequently asked questions
What is commonly understated?
What is the new business rule?
