Page 47 - Calculating Lost Profits

 company-specific factual investigation.

Evaluation of Specific Cost Line Items

As part of the analysis of the costs to be included in the determination of lost profits, the practitioner
should consider the facts and circumstances related to specific cost line items. For example, it may be
appropriate to adjust the analysis for one-time events, nonrecurring items, or other case-specific factors.
The basis for such adjustments is a sufficient understanding of the historical cost evidence.

Using the American Kitchen example, an expert might look at the historical costs of Franchisee’s other
operations and locations. fn 3 This analysis may be performed on a line-item basis, as seen in the follow-
ing table.

Figure 7.1. Historical Company Cost Analysis

fn 3 Courts have also considered whether margin information provided by management is appropriate to use to calculate lost profits as
applied to the particular lost sales at issue in a case. Glattly v. Air Starter Components, Inc., 332 S.W.3d 620 (Tex. App. 2010) (Find-
ing the use of a management-supplied, company-wide margin was not appropriate to apply to the customer and lost sales at issue
where no additional evidence was presented to support the profit margin and its particular use by the expert).

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