Lost Profits: Is There an Easy Button?
Baker Tilly refers to Baker Tilly Virchow Krause, LLP, an independently owned and managed member of Baker Tilly International.
For: TSCPA 2014 Expo
David Kirk, CPA/CFF
Alex Walther, CPA, CFE
© 2010 Baker Tilly Virchow Krause, LLP

Lost Profits: Is There an Easy Button
Agenda
Agenda/Introductions - Your Program!
Lost Profits - Dilemma – Lost Profits Defined
“Fab Four” of Credible Lost Profits Analyses
Planning
Determining Appropriate Damages Period
Estimating Lost Revenues and Costs
Sufficient Reliable Data
One v. Two Model Approach
Other Relevant Lost Profit Topics

David is a senior manager in Baker Tilly’s Consulting Group where he provides a variety of financial consulting and accounting services to attorneys, insurance companies, governmental agencies, and public and private corporations.
Prior to joining Baker Tilly, David spent approximately 11 years with national and regional accounting firms providing forensic accounting and litigation services as well as accounting and auditing services. He specializes in providing financial consulting analyses related to matters in dispute including shareholder disputes, lost profits, mergers and acquisitions, forensic investigations, professional liability and class action lawsuits.
David serves on the TSCPA Business Valuation, Forensic and Litigation Services
Committee and is also a member of the Annual Conference Coordinator Committee.
David is part of the TSCPA Leadership Committee, DCPAs Partners In Education
Committee and is a mentor for the AICPA CFF Mentor Program.

A senior manager in the firm’s consulting group, Alex specializes in providing forensic accounting and consulting services to litigators, businesses, not for profit, and government entities. Specifically, Alex assists clients better understand complex accounting issues that arise in complex commercial litigation, shareholder disputes, insurance claims, economic damages, and fraud / forensic investigations.
Prior to joining Baker Tilly, Alex spent one year with a top 30 accounting firm performing audits, internal control reviews, and reviews of information technology internal controls.
Alex has a M.S.A. in Accounting and B.B.A in Accounting from Texas Tech
University. He has spoken before professional and educational groups on various aspects of financial analyses, litigation consulting, fraud investigations, economic damages, and current trends in the use of data and analytics in forensic accounting matters.

Plaintiff Defendant
The Art v. The Science

6 years
$30 mil
?
18 months
Plaintiff Defendant
The Art v. The Science
$2 mil

Planning
Determining the appropriate damages period
Estimating the relevant lost revenues and costs
Obtaining sufficient reliable data to support the financial expert’s analyses, assumptions, and opinions.

Lost Profits Defined
Lost profits are based upon the alleged harm suffered by the
Plaintiff or injured party.
In a business setting, lost profits are determined as the amount necessary to place the injured party in a position that it would have realized had the incident not occurred.
Only “Net Lost Profits” are allowable in economic damages –
(Net Lost Profits = Lost Revenues less Avoided/Incremental
Costs)

Courts have stated the general rule permitting alternate theories of recovery:
“[I]f a business is completely destroyed,
(then) the proper total measure of damages is the market value of the business on the date of the loss. If the business is not completely destroyed, then it may recover lost profits. A business may not recover both lost profits and the market value of the business .”¹
1.
Montage Group, Ltd. V. Athle-Tech Computer Systems, Inc., 889 So.2d 180, 191 (Fla. App.2004)
(internal citations omitted). From “The Comprehensive Guide to Lost Profit Damages,” 2013, Chapter 9

Conceptual Issues in Measures of
Economic Damages (cont.)
Montage Group, Ltd. V. Athle-Tech Computer Systems,
Inc., 889 So.2d 180, 191 (Fla. App.2004)

Conceptual Issues in Measures of
Economic Damages (cont.)
Stated another way:
Numerous jurisdictions hold to the view that when the loss of business is alleged to be caused by the wrongful acts of another, damages are measured by one of two alternative methods: (1) the going concern value; or (2) lost future profits. [T]he courts allow a plaintiff to recover either the present value of lost future earnings or the present market value of the lost business, but not both. The ‘going concern value’ is the price a willing buyer would pay and a willing seller would accept in a free marketplace for the business in question. It measures damages by awarding the difference between the going concern value and the price actually received by the plaintiff upon sale of the business.
²
2. Protectors Insurance Service, Inc. v. U.S. Fidelity & Guaranty Co., 132 F.3d 612 (10th Cir. 1998) But see Cooper Distributing Co. v. Amana Refrigeration,
Inc.
180 F.3d542 (3rd Cir. 1999) From “The Comprehensive Guide to Lost Profit Damages”, 2009, Chapter 8.

Conceptual Issues in Measures of
Economic Damages (cont.)
Protectors Insurance Service, Inc. v. U.S. Fidelity &
Guaranty Co., 132 F.3d 612 (10th Cir. 1998)

Conceptual Issues in Measures of
Economic Damages (cont.)
Cooper Distributing Co. v. Amana Refrigeration, Inc.
180
F.3d542 (3rd Cir. 1999)

Conceptual Issues in Measures of
Economic Damages (cont.)
Scenario 1: Temporary Impairment¹
Scenario 2: Immediate Destruction of Business²
Scenario 3: Slow Death of a Business³
Scenario 4: Startup/Emerging Businesses
1. “Financial Valuation Applications and Models”, Second Edition, James R. Hitchner, Wiley Finance, pages 1032-1034.”
2. ibid
3. ibid

Exhibit 1 – Temporary Impairment¹
Expected Profits
$1,600,000
$1,200,000
$800,000
Lost Profits
$400,000
Actual Profits
$0
1 2 3 4 5 6
1. “Financial Valuation Applications and Models”, Second Edition, James R. Hitchner, Wiley Finance, pg. 1033
7

Scenario 2: Immediate Destruction of
Business
Exhibit 2 – Immediate Destruction of Business²
$2,000,000
Expected Profits
$1,600,000
$1,200,000
$800,000
Lost
Business
Value
$400,000
$0
Actual Profits
1 2 3 4 5 6 7 8
2. “Financial Valuation Applications and Models”, Second Edition, James R. Hitchner, Wiley Finance, pgs. 1033 and 1034.
9 10

Exhibit 3 – Slow Death of Business³
$2,000,000
Expected Profits
$1,600,000
$1,200,000
$800,000
Lost
Profits
$400,000
$0
Actual Profits
1 2 3 4 5 6 7
3. “Financial Valuation Applications and Models”, Second Edition, James R. Hitchner, Wiley Finance, pg. 1034.
8
Lost
Business
Value
9 10

Exhibit 4 – Startup/Emerging Businesses
$2,000,000
Expected Profits
$1,600,000
$1,200,000
$800,000
Incident
Losses May Be too Speculative
$400,000
$0
1 2 3 4 5 6
Actual Profits
7 8 9 10

Comparative Summary of Lost
Profits v. Loss of Value:
The following table summarizes the differences between lost profits and lost business damages: ¹
Attribute
Income stream
Income stream
Income stream
Valuation methods
Discount rate
Prejudgment and post judgment interest
Lost Profits
Incremental income stream net of avoided costs
Before income tax
Typically limited life
Present value of post trial lost incremental income added to pretrial lost incremental income including appropriate pre-judgment interest added to the date of trial
Based on either risk assessment, riskfree rate, or plaintiff’s use of funds depending on circumstances
(see Chapter 10A)
Considered
Loss of Value
Typically net after tax income
Typically after tax income
Into perpetuity
Discounted net income or net cash flow model, supported by other valuation methodologies as needed
Based on risk assessment
Considered
Use of hindsight
(the “Book of Wisdom”)
Typically considered Seek guidance
1.
” The Comprehensive Guide to Lost Profits Damages”, 2011, pg. 462, Business Valuation Resources.

Causation is the "causal relationship between conduct and result".
That is to say that causation provides a means of connecting conduct with a resulting effect.
Legal Causation - A body of rights, obligations, and remedies that is applied by courts in civil proceedings to provide relief for persons who have suffered harm from the wrongful acts of others.
Factual Causation determines exactly what happened and whether someone was responsible for the event or whether it would have occurred anyway.

Published in the Winter 2011 – Dunn on Damages Issue 5
Addresses Causation Scenarios for the Damages Expert
•Addresses:
•Relevancy
•Reliability
•Accepted Methodology
•Realm of Specialization

Three Common Elements –
- Legal Causation
The plaintiff must establish that the defendant was under a legal duty to act in a particular fashion.
The plaintiff must demonstrate that the defendant breached this duty by failing to conform his or her behavior accordingly.
The plaintiff must prove that he suffered injury or loss as a direct result of the defendant's breach.

Credible lost profits include economic damages that are natural, proximate, probable, or a direct consequence of an act, excluding remote consequences.
Courts generally rule that Plaintiffs must establish lost profits to a reasonable degree of certainty.
Calculations cannot be speculative, vague or contingent, unreasonable, or unforeseeable factor.

The approaches, methodologies, analytical procedures, and analyses must relate to the specific information of the issues in dispute.
The link between liability and causation is necessary to establish economic damages.
Damages for net lost profits are recoverable only if the plaintiff establishes legally sufficient proof that the financial expert’s economic damages are reasonable and that reliable factors were utilized.

Coyne’s & Co., Inc. v. Enesco, LLC, 2010 WL 3269977 (D. Minn.)
•Plaintiff’s CPA expert calculated lost profits damages through the contract term, plus the profits it would have earned had the contract been extended for an additional year.
•Defendants challenged under Rule 702 of the Federal Rules of
Evidence and the Daubert standard. Defendants claim the expert’s opinions were “simply rudimentary math,” which failed to address alternative explanations for the plaintiff’s losses and left an
“analytical gap” between the lost profits data and the expert’s conclusions.
•The court found the plaintiff’s analysis was “not so fundamentally unsound as to offer no assistance to the jury.”

Proper Planning
Elements Requiring Analyses
The financial expert analyses in calculating credible net lost profit damages should address (at a minimum):
• Cause of loss
• Factual basis for the claim
• Legal pleadings
• Deposition testimony

Proper Planning
Elements Requiring Analyses
(Cont.)
• Determination of evidence supporting the financial claims
• Selection of one or two model approach to be used to communicate results
•
Appropriate methodologies to estimate lost revenues
• Historical financial information and industry / economic data to support the estimation of lost revenues and incremental costs

Proper Planning
Elements Requiring Analyses
(Cont.)
• Answers to interrogatories
• Economic and industry outlook, and their effect on the damages claim
• Selection of most appropriate methodology(s)
• Actual performance during the historical damages periods, or anticipated performance in the future damages periods

Proper Planning
Elements Requiring Analyses
(Cont.)
• The length of the damages period
• Discount rates, if applicable
• Prejudgment interest relevant for the jurisdiction/venue, if applicable
• Independent research conducted by the expert as necessary to support the economic damages

Together, these elements comprise the framework within which the financial expert can build credible lost profits damages analyses
Credibility also depends on:
Assumptions
Support
Documentation
Conclusions
Damages for net lost profits are recoverable only if the plaintiff establishes legally sufficient proof that the financial expert’s economic damages are:
Reasonable
The expert used reliable factors without undue speculation

“Without” v. “With” alleged actions
OR
“But for”/Projected analyses v.
Actual/Projected analyses
OR
Lost profits analyses = (But for Revenues –
Costs)
– (Actual Revenues – Costs)

Determining the
Appropriate Damages
Period
• Is it an Art v. Science
• Typically begin on the date of the harmful act
• End date is generally when the injured party is returned to the position it would have originally occupied had the alleged damaging action(s) not occurred
• Duration of damages period left to processes of the trier of fact informed by the presentation of conflicting evidence
• Consider preparing multiple damage periods

Cole’s Tractor & Equipment, Inc. v. Homier
Distributing Co.
• Plaintiff’s expert excluded under Daubert for speculating on facts that were contrary to the evidence
•
Expert report was factually flawed, little to no assistance to jury and did not “rise above the level of speculation”
•
The expert took projections out 25 years, but did not consider that the agreement states it “may be terminated, by either party, for cause, giving at least 90 days written notice.”

•
Need to differentiate between legal/factual requirement of causation and the proof of the amount of economic damages
•
Fact of damage is required to be proven with reasonable certainty
− Applies to the entire economic damages period, not just first or baseline year
− Prove the acts of defendant caused damages
− Defendant’s act need not be the sole cause of plaintiff's lost profits they must be a significant or material factor in the cause of loss
•
Expert may consider the effects economic, industry, companyspecific and other relating factors in their economic damages calculation

Estimating “But-For”
Revenues - Four Methods
• These methods provide the conceptual framework to gather empirical and evidentiary support for revenue and cost projections of what would have happened “but-for” the actions alleged against the defendant
Before and after method (Historical)
Yardstick method (Industry & Guidelines)
Sales projections method
Market model

Quantities:
• Market share/behavior
(demand)
• Geographic issues
• Economic trends
• Industry trends
• Technology
• Capacity

• Market share
• Cost of production
• Competition
• Regulations

Justify your conclusions
Number of comparables (transactions, companies, etc.)
Written documentation
Contracts or sales orders
Sufficient reliable data (historical)
Satisfy reasonable certainty

Is a commonly accepted method to calculate lost profits
Determines economic revenues before the damages period by comparing the performance of the business BEFORE the event occurred and AFTER the effects of the damaging events ends.

$1,600,000
$1,200,000
$800,000
$400,000
$0
1
Actual Profits
Before
2 3 4 5
Actual Profits After
6
Actual Profits during
Damages Period
7

Coastal Fuels of Puerto Rico, Inc .(“Coastal”) v. Caribbean
Petroleum Corp .(“Capeco”) 79 F.3d 182 (1 st Cir. 1996)
• The court looks at the plaintiff’s business before the violation occurred, during the violation period, and after the violations ended, and estimates the amount by which the violation reduced the plaintiff’s profits.
• Defendant argued that Coastal should have used the Yardstick Method. That would require an appraisal of the reliability of a firm’s track record, and consideration of the length of the track record, which was only weeks long.

Springs Window Fashions Div., Inc .(“Springs”) v. The Blind
Maker, Inc .(“Blind Maker”), 184 S.W. 3d 840 (Tex. App. 2005)
• The damage expert stated the Before and After Method
“is a very straightforward, simple methodology. What it means is, you look at the operation of the business as it occurred especially over a long period of time. And then you look at an event. And then you look at the business after the event before and after.”
• Court considers award of lost profits as consequential damages stemming from a fraud claim, and permitted recovery based on a before and after analysis of overall business profits.

• Utilizes guideline company or industry measures to serve as proxy:
− Lost revenues
− Costs
− Profits
• Should demonstrate:
− Similar product
− Similar size
− Similar location
− Similar capabilities
• Data should be of sufficient comparability and derived from reputable and reliable sources

Gary’s Implement, Inc. v. Bridgeport Tractor Parts
•
Plaintiff sued for breach of contract, and after the first trial, the Jury agreed
• After the Defendant’s appeal and related litigation, a second jury trial found in favor of the defendant and awarded damages for the plaintiff’s breach.
• Plaintiff appealed, and the court examined the expert’s approaches to calculating defendant’s loss, including the yardstick method.
•
The court stated that even though the expert relied upon financial data that were “outside of time period specified by the noncompetition agreement,” the expert’s testimony was reliable enough to not be an “abuse of discretion.”

•
Utilizes company-specific forecasts for certain items, preferably by using forecasts that the company has prepared in the normal course of business or some purpose other than litigation
•
Expert should try to conduct additional, independent analyses of management projections and business plan to determine that they are consistent with:
− The industry
− The guideline company
− Or other benchmarks
− Professional standards
•
What to Avoid
− Pulling numbers from thin air
− Presenting an unsupported wish list

U.S. Salt, Inc. v. Broken Arrow, Inc., 2008 WL 2277602 (Minn.
2008)
• Expert’s wholesale acceptance of management projections without any verification of the estimates or any independent market analysis were too speculative;
• Although the law does not require mathematical certainty in the proof and analyses of lost profits, it requires evidence of profits grounded upon a reasonable factual basis.

Telxon Corp. v. Smart Media of Delaware, Inc., 2005 WL 2292800
(Ohio App. 2005)
• Case related to alleged agreements to develop a new retail technology concept, and involved claims of breach of contract, promissory estoppel, fraud, and misrepresentation.
• Plaintiff’s expert opinions and report were based entirely on a business plan that plaintiff developed some three years after the breach and almost 15 months after filing the lawsuit.
• Expert’s opinion was unreliable and speculative.

• The Expert considers the plaintiff’s market share prior to the defendant’s alleged act to determine lost revenues/sales
• Not used as often as the other three methods
• Used more often in Patent infringement cases
• Expert must define the appropriate market and analyze the subject company’s historical sales as well as those of its competitors

See, e.g., Conwood Co. v. U.S. Tobacco Co., 290 F.3d 768 (6th
Cir. 2002); and Crystal Semiconductor Corp. v. Tritech
Microelectronics International Inc., 246 F.3d 1336 (Fed. Cir.
2001)
• Plaintiff sought lost profits for alleged patent infringement based on its market share.

Experts may also use other approaches such as:
• Regression analysis
• High-low method
• The increment method
• Terms of an underlying contract
• Accounting of the defendant’s profits

•Know your subject company and how they track costs
•Statistical Methods (e.g. regression analyses or attribute sampling)
•Non statistical Methods(e.g. detailed account analyses, direct assignments, accounting estimates, cost accounting allocations, ratio analyses, etc.)
•Consider market and economic conditions
•Understand the fixed, variable, and semi variable cost

Costs that should be deducted from lost revenues to determine lost profits
• Cost that would have been incurred in connection with the generation of the claimed lost revenues/economic damages
• Damages are equal to the revenue that would have been derived, less additional costs that would have been incurred, in performing the contract
• Reasonable certainty requires proof of gross profits and generally, evidence of overhead expenses or other costs of producing income

Starting point for the cost structure analyses generally is the determination of fixed versus variable costs
• Fixed cost – will be expended regardless of sales volume
• Variable cost – will be spent only to generate additional sales volume

Glattly v. Air Starter Components, Inc., 2010 WL 3928480 (Tex. App.-
Hous. (1 Dist))

• Can vary depending on the underlying cause(s) of action and the underlying facts of the case.
•
Typically begins on date of the harmful act.
• End date is generally when plaintiff returned to the position it would have originally occupied had the alleged damages actions not occurred.
• Trial date may not provide the end point to the loss.
• Future damages periods need to be discounted.

• Defendant has the burden of pleading or proving (a/k/a/ “doctrine of avoidable consequences”)
• Plaintiff should take reasonable steps to mitigate damages caused by the defendant’s conduct
• Does not require unreasonable or unprotected actions
• The injured party will not be compensated for those damages that the injured party could have avoided by reasonable efforts or expenditures

In re Magna Cum Latte Inc.
• “[D]amages are equal to the revenue that would have been derived, less additional costs that would have been incurred, in performing the contract.”
• Lacked reasonable certainty as to both the occurrence and extent of the alleged renewal.
• Court denied the business’s anticipated profits over a
10-year contract renewal term.

Keys to A Credible Loss Profit Analyses
• Demonstrate the relevance, reliability, comparability, and usefulness of the data relied upon
• Evaluate sensitivity of assumptions
• Data must be complete, neutral and free from errors

The AICPA Code of Professional Conduct states the following with regard to sufficient relevant data:
Obtain sufficient relevant data to afford a reasonable basis for conclusions or recommendations in relation to any professional services performed.

Statement of Financial Accounting Concepts No. 8 states the following with regard to the relevance and usefulness of financial information:
[I]t must be relevant and faithfully represent what it purports to represent. The usefulness of financial information is enhanced if it is comparable, verifiable, timely and understandable.
Furthermore, the standards indicate that financial information should be
“complete, neutral, and free from error.”

Reasonable Certainty
• Oregon Supreme Court Justice – “I must confess…that I have no more idea what reasonable certainty means than I have as to the meaning of certain.” Hardwick v. Dravo Equip. Co.
, 569 P.2d 588
(Or.1977)
• Does not require exact precision but should not be mere speculation
• Court adopted the rule that damages are recoverable for loss of future profits only to the extent that the evidence affords a sufficient basis for estimating such profits with reasonable certainty
• Expert had sufficient supporting data to support the claim for lost profits.

Blinds to Go, Inc. v Times Plaza Development, LP, 2011 N.Y. App. Div.
Lexis 7242

Glattly v. Air Starter Components, Inc., 2010 WL 3928480 (Tex.
App.-Hous. (1 Dist))
> Newly formed Company misappropriated trade secrets of an established company.
> Established company granted lost profits
> Appeal asserted failure to prove its damages for lost profits with reasonable certainty
> Supreme Court of Texas stated “Recovery for lost profits does not require that the loss be susceptible of exact calculation.
However, the injured party must do more than show that they suffered some lost profits…. Opinions or estimates of lost profits must be based on objective facts, figures, or data…”

Gary’s Implement, Inc. v. Bridgeport Tractor Parts, 2011 WL 1198401

Illinois Tool Works, Inc. v. MOC Products Co., Inc., 2012 U.S. Dist. Lexis
116471 (August 17, 2012)

> Garbage in = Garbage Out
> Testing and Verification
> Must be supportable to be reliable
– Assumptions
– Documentation
– Opinions

The following sample lost profits analyses are included only for informational and educational purposes.
Scenario One and Two

Sample Lost Profits (One Model Method)
Damages Analyses With a Time Value of Money/Discount Rate
A
B
C - A * B
D = A - C
E
F = 1 / (1+E) ^ # of periods
G = D * F
Year 1
Historical Periods
2 3 4
Future Periods
5 Total
Lost Revenues
Incremental Cost
%
Incremental
Costs
Lost Profits
Discount Rate
Discount Factor
Present Value of
Lost Profits
$610,000 $660,000 $710,000 $250,000
45% 45% 45% 45%
$335,500 $363,000 $390,500 $119,625
$0
45%
$274,500 $297,000 $319,500 $112,500
$335,500 $363,000 $390,500 $137,500
15%
1.00
15%
1.00
15%
1.00
15%
0.87
$0
$0
15%
0.76
$1,003,500
$1,226,500
$0
$2,230,000
$1,208,625

1
Appendix A Summary - Net Lost Profits
Historical Periods
2 3
Future Periods
4 5 Year Total
"But For" Lost
Profits - Appendix B $ 730,000 $ 925,000 $ 1,037,500 $ 1,150,000 $ 1,180,000 $ 5,022,500
Actual/Projected
Lost Profits -
Appendix C 394,500 562,000 647,000 1,012,500 1,180,000 3,796,000
$ 335,500 $ 363,000 $ 390,500 $ 137,500 $ $ 1,226,500 Net Lost Profits
Discount Rate 15%
1.00
15%
1.00
15%
1.00
15%
0.87
15%
0.76
Discount Factor
Present Value of
Lost Profits $ 335,500 $ 363,000 $ 390,500 $ 119,625 $ $ 1,208,625

Appendix B
“But For” (a/k/a “Without
Interruptions ”) Lost Profits
Year
"But For" Revenues:
Product A
Product B
Total Revenues
Expenses
Fixed
Semi-variable
Variable
Total Expenses
"But For" Lost Profits
1
Historical Periods
2 3
Projected
Future Periods
4 5 Total
$ 900,000
700,000
1,600,000
$ 1,100,000
900,000
2,000,000
$ 1,250,000
1,000,000
2,250,000
$ 1,400,000
1,100,000
2,500,000
$ 1,500,000
1,100,000
2,600,000
$ 6,150,000
4,800,000
10,950,000
150,000
240,000
480,000
870,000
175,000
300,000
600,000
1,075,000
200,000
337,500
675,000
1,212,500
225,000
375,000
750,000
1,350,000
250,000
390,000
780,000
1,420,000
1,000,000
1,642,500
3,285,000
5,927,500
$ 730,000 $ 925,000 $ 1,037,500 $ 1,150,000 $ 1,180,000 $ 5,022,500

Appendix C
Actual/Projected (a/k/a “With
Interruptions ”) Lost Profits
Year 1
Historical Periods
2 3 4
Future Periods
5 Total
Actual/Projected Revenues:
Product A
Product B
Total Lost Revenues
$ 590,000
400,000
990,000
$ 770,000
570,000
1,340,000
$ 850,000
690,000
1,540,000
$ 1,275,000
975,000
2,250,000
$ 1,500,000
1,100,000
2,600,000
$ 4,985,000
3,735,000
8,720,000
Expenses
Fixed
Semi-variable
Variable
Total Expenses
150,000
148,500
297,000
595,500
175,000
201,000
402,000
778,000
200,000
231,000
462,000
893,000
225,000
337,500
675,000
1,237,500
250,000
390,000
780,000
1,420,000
1,000,000
1,308,000
2,616,000
4,924,000
Actual/Projected Lost Profits $ 394,500 $ 562,000 $ 647,000 $ 1,012,500 $ 1,180,000 $ 3,796,000

• Expert’s estimation of lost profits should define the facts and assumptions on which he/she is basing the analyses.
• Should be credible and helpful to trier of fact by providing information that is both relevant and reliable in the context of the particular matter.
• The approaches, methodologies, analytical procedures and calculations must relate to the specific information of the issues in dispute.
• When financial experts have not tied their analyses to the underlying cause of the damages, courts have often excluded their testimony on the basis of either irrelevance or unreliability or both.

Remember the “Fab Four” of
Credible Lost Profits
Planning
Determining the proper damages period
Estimating the relevant lost revenues and costs
Obtaining sufficient reliable data to support the financial expert’s analyses, assumptions, and opinions.

David Kirk, CPA/CFF
214-658-6584
David.Kirk@BakerTilly.com
and
Alex Walther, CPA, CFE
713-802-0041
Alex.Walther@BakerTilly.com