Page 52 - Calculating Lost Profits

As a result, it is important to identify any confounding events that could lead to an improper conclusion
related to the relationship between revenues and costs and to perform reasonableness checks when lev-
eraging statistics-based approaches to estimate incremental costs.

Company-Specific Factual Investigation

As described previously, a company-specific and cost-specific analysis is often helpful in analysis of in-
cremental expenses. This also frequently applies when performing a statistical analysis such as in the
preceding example. For example, it may also be appropriate to look at total expenses, or groups of ex-
penses, and the relationship with total revenue. For example, the following is a table with total parent-
level expenses compared to revenue.

Figure 7.6. Total Parent-Level Expenses Compared to Total Food and Beverage Revenue

There does not appear to be much, if any, correlation between parent-level expenses and store revenue.
However, if there is a relationship between parent-level expenses and store revenue, it would likely be
better seen in an analysis of the individual cost line items. For example, it is possible that individual cost
line items, such as legal expenses, would rise with the addition of new stores. In fact, this is supported
by the data.

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