Lost profit damages are basically happens when the buyer breaches the agreement and is an estimate consisting of the total amount of money lost. It is the sum total of all the benefits that will be offered by the seller on a sale when the buyer of a product adheres to the contract. The seller has the right to claim the damage due to the lost profits from the buyer by showing that according to the terms and conditions of agreement and the demand of buyer gas been met by the seller.
The main purpose to calculate the business damage (lost business or lost profits) by the financial expert is to restore the position of the plaintiff. The damages are measured for a limited or some specific period of time while calculating the lost profits. The loss profit is actually the difference in what the business would have produce in loss period and what the business actually produced in the same period of time. In both the cases all the expenses regarding the business will be taken into consideration.
To recover lost profits, it is the duty of financial expert to use both artistic and scientific methods in the interpretation of circumstances and facts that can eventually tell an accurate and detailed story regarding the lost profits. There is a multi faceted approach for determining the lost profits. The process has following steps:
- The profit history regarding the damaging event will be compared in terms of before and after and then the lost earnings will be calculated.
- To understand the cost structure of the subject company
- The calculated expenses will be examined for reasonableness
- Possible reasons will be considered for decline in sales
- The impact of marketplace demands, government regulations and economic conditions on sale loss will be examined
- Detailed information regarding the expenses, assumed revenue and rate of growth will be presented
In order to avoid any contradictory information there is a requirement of meticulous attention regarding each and every detail. In the process of prediction of financial results of a company an analyst can have information from market surveys, business plans, income projections and revenue projections. The analyst must have the in depth knowledge regarding the company’s products, competition, markets and various other market forces impact. The data can be taken from the market, industry sources and comparable companies.