Commercial disputes frequently raise questions about the financial impact of an alleged breach, business tort, or other wrongful conduct. These issues can arise in matters such as breach of contract, business interruption, intellectual property infringement, unfair competition, and partnership or shareholder disputes, among other commercial and contractual disagreements. Depending on the matter, the claimed loss may involve lost profits, a reduction in business value, additional costs, or another measure of economic loss.
Reliable analysis you can trust
Defensible calculations and methodologies
Industry and market evidence driven
Clear reports that explain the numbers
Insight Forensic & Valuation Services provides independent economic damages analysis, forensic accounting, financial analysis, and expert services in commercial disputes. We work with counsel to understand the scope of the assignment, identify the financial questions at issue, and analyze the financial information relevant to quantifying the claimed loss.
Counsel determines the applicable legal framework, including liability, causation, and the legal standard governing the measure of damages. Our role is to analyze the financial and economic evidence within that framework and develop a damages calculation that is well-supported, clearly explained, and able to withstand scrutiny in negotiation, mediation, arbitration, or trial.
Types of Commercial Disputes Involving Economic Damages
Economic damages issues can arise in a wide range of commercial disputes. Depending on the nature of the claim, our work may address damages arising from:
Breach of contract, including supply, distribution, licensing, and service agreements
Business torts, such as fraud, misrepresentation, unfair competition, and tortious interference with contract or business relationships
Intellectual property infringement, including patent, trademark, trade secret, and copyright matters
Partnership, shareholder, and joint-venture disputes
Franchise and dealer disputes
Construction and real estate disputes
Insurance coverage and first-party claims
Employment matters, including non-compete and trade-secret disputes
Government contract and regulatory disputes
The applicable legal theory and measure of damages depend on the claims asserted and the governing law. Counsel determines the legal framework; our role is to analyze the financial and economic issues relevant to quantifying the claimed loss under that framework.
Intellectual property damages analysis, where applicable
Review and rebuttal of opposing damages analyses
The appropriate measure and methodology depend on the nature of the claimed loss, the financial information available, and the framework established for the assignment.
How Economic Damages Are Measured
There is no single method for calculating economic damages. The appropriate analysis depends on the type of financial loss being measured and the facts and circumstances of the matter.
Lost Profits
Lost profits analysis estimates the profits a business would have earned but for an alleged event or conduct and compares those profits with the results actually achieved or expected. The analysis considers the revenue the business would have generated, the costs associated with that revenue, and other factors affecting financial performance.
The methodology may rely on historical financial performance, budgets and forecasts, customer and sales data, industry and market information, and other relevant information.
For additional information regarding the analysis and quantification of lost profits, see our Lost Profits Analysis page.
Methods of Estimating Lost Profits
Several recognized methods may be used to estimate lost profits, depending on the availability and reliability of financial and market information.
Before-and-after method, comparing the business's financial performance before and after the alleged event
Yardstick (benchmark) method, comparing the subject business to comparable businesses, industry data, or market benchmarks unaffected by the alleged event
Market model method, using statistical or economic modeling to isolate the effect of the alleged event from other factors affecting performance
Sales projection method, comparing actual results to pre-event projections, budgets, or forecasts
The appropriate method, or combination of methods, depends on the availability of reliable historical and market information and the specific facts of the matter.
Diminution in Business or Asset Value
In some matters, economic damages may be measured by a reduction in the value of a business, ownership interest, or other asset.
A diminution in value analysis compares value with and without the impact of the event at issue. Depending on the assignment, the analysis may consider the business's financial performance and outlook, market conditions, assets and liabilities, and other factors affecting value.
That comparison is a valuation, performed within the frameworks described under business valuation.
Other Measures of Economic Loss
Depending on the matter, economic damages may involve other measures, such as incremental costs, lost compensation or economic benefits, reasonable royalties, or unjust enrichment. The appropriate measure depends on the nature and circumstances of the assignment.
The Damages Period
The damages period is the time frame over which the claimed economic loss is measured. Depending on the matter, the damages period may begin on the date of the alleged event, breach, or wrongful conduct and may extend through trial, a specified contractual term, or another date established by the applicable legal framework.
Where the claimed loss is expected to continue beyond the trial or valuation date, the analysis may need to estimate damages for a future period based on reasonable projections and assumptions supported by the available evidence.
Counsel determines the legally appropriate damages period; we apply that period to the financial and economic analysis and identify the effect that different assumptions about the damages period may have on the calculated amount.
Present Value and Discounting Future Losses
Where a damages calculation includes losses expected to occur after the valuation or trial date, those future amounts are generally discounted to their present value to account for the time value of money and the risk associated with achieving the projected results.
The selection of an appropriate discount rate depends on the nature of the loss and the risk associated with the projected cash flows. Depending on the assignment, the analysis may consider a risk-free rate, a risk-adjusted rate reflecting the specific risks of the business or claim, or another rate supported by the facts and circumstances.
Conversely, past losses may need to be adjusted to reflect interest or the time value of money from the date incurred to the valuation date, depending on the applicable legal framework and the terms of the assignment.
A damages calculation depends on the reliability of the financial information and assumptions underlying the analysis. Depending on the engagement, we may review:
Historical financial statements and tax returns
General ledgers and accounting records
Budgets and forecasts
Sales and customer information
Contracts and other business records
Operating metrics and other nonfinancial data
Industry, market, and economic data
Where financial records are incomplete or inconsistent, additional analysis may be needed to reconcile the available information and understand the underlying financial activity.
Assumptions used in the damages calculation should also be evaluated in relation to the company's historical performance, business conditions, and other information relevant to the period being analyzed.
Where records are incomplete or the underlying activity has to be reconstructed before it can be measured, that work is forensic accounting.
Factors Affecting Economic Damages
A business's financial performance may be influenced by factors unrelated to the event at issue. An economic damages analysis should consider these factors where they may have affected results during the relevant period.
Depending on the circumstances, these may include changes in economic or industry conditions, competition, customer demand, pricing, operations, management, or other business-specific factors. The analysis may also consider actions taken to reduce the financial impact and other financial benefits or offsets associated with the circumstances of the matter.
Our role is to analyze these factors from a financial perspective and evaluate their effect, where relevant, on the damages calculation.
Mitigation and Offsetting Financial Benefits
A damages analysis may need to consider actions taken, or that could have been taken, to reduce the financial impact of the alleged event, along with other financial benefits associated with the circumstances of the matter.
Depending on the matter, this may include costs avoided as a result of the alleged event, income earned from replacement business or alternative use of resources, insurance or other third-party recoveries, and cost savings realized during the damages period.
Counsel determines the legal treatment of mitigation and offsetting benefits under the applicable framework. We analyze the financial evidence relevant to these issues and quantify their effect on the damages calculation where appropriate.
Review of Economic Damages Analyses
We review economic damages analyses prepared by other experts to understand the assumptions, methodologies, and calculations underlying their conclusions.
Depending on the assignment, our review may address the selected damages methodology, measurement period, projections and growth assumptions, cost assumptions, mitigating or offsetting financial effects, valuation assumptions where applicable, and consistency with the underlying financial information.
Differences between damages conclusions may result from different assumptions, methodologies, or interpretations of the available information. We independently evaluate those differences and assess whether the analysis is financially supported and internally consistent.
Economic Damages Expert Services
Insight Forensic & Valuation Services may serve in a consulting or testifying capacity throughout an economic damages engagement. Our work may include assisting with financial discovery, analyzing business and accounting records, developing independent damages calculations, reviewing opposing analyses, preparing expert reports, and providing deposition, arbitration, or trial testimony.
Written Reports and Disclosures
Depending on the applicable rules and requirements, our work may include preparing expert reports, disclosures, or other written work product that identifies the opinions reached, the information considered, and the basis for our conclusions.
Deposition, Arbitration, and Trial Testimony
When testimony is required, we present our analysis and conclusions in a manner that can be understood by the fact-finder, whether a judge, jury, or arbitrator, and that clearly traces our conclusions to the underlying financial information and analysis.
Counsel determines the applicable legal framework and legal issues relating to the matter. Our role is to independently analyze and quantify the relevant financial impacts and clearly explain the assumptions, methodology, and calculations underlying our conclusions.
The expert role across the whole of a matter, including review of an opposing analysis, is described under litigation support.
We use analytics cookies to see which pages are read and how visitors arrive. They do not run unless you allow them, and we do not use them for advertising. Our privacy policy explains what they record.
