Knowledge and Insights

How to Obtain Meaningful Economic Damage Calculations

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Economic damage assessments are derived from complex calculations. Plaintiffs can seek to recover economic damages suffered as a result of another person’s wrongful act(s) in a variety of cases, including business interruption, employment discrimination, breach of contract, unjust enrichment, wrongful termination, and age discrimination. Forensic accountants are often called upon to evaluate and quantify economic damages in such litigation settings and may provide services to counsel for either plaintiffs or defendants.

The forensic accountant’s role in each case usually depends upon the circumstances under which he or she is engaged. However, in all cases, forensic accountants must stay abreast of: (1) theoretical damage issues and concepts; (2) damage calculation methodologies, approaches and techniques; and (3) applicable professional standards and legal principles.

A combination of forensic accounting experience and practical business savvy goes a long way when calculating lost economic potential due to the occurrence of allegedly harmful acts or events. Generally speaking, lost profit calculations are primarily based on three fundamental components: (1) financial causation; (2) but-for profits; and (3) actual profits. Financial causation relates to the causal link between a specific event and the alleged lost profits resulting from that event. But-for profits are considered to be the profits that would have been achieved but-for the specific event that allegedly caused the harm. Actual profits are the profits that were ultimately achieved because of the specific event. After a forensic accountant obtains a thorough understanding of each of these components, he/she is in a strong position to provide meaningful insights with respect to the merits of an economic damages claim.

At Mercadien, our forensic accounting and litigation support professionals utilize a combination of expertise in the areas of accounting, taxation, economics, and finance to evaluate and calculate economic damages in a variety of commercial litigation matters. Although the vast majority of cases settle upon the completion of our analysis and issuance of our formal written report, we are uniquely qualified to provide expert witness testimony, during depositions or at trial.

If you have any questions or would like further information, please do not hesitate to contact us at (609) 689-9700 or