Page 8 - Calculating Lost Profits

Chapter 6 — Estimating Lost Revenues ........................................................................................................... 31

Overview ........................................................................................................................................................... 31

Understand the Allegations ............................................................................................................................... 32

Understand the Agreements and Contracts ....................................................................................................... 32

Request, Analyze, and Understand Relevant Documents and Information ...................................................... 33

Assess the Reliability of Available Information ............................................................................................... 34

Determine the Applicable Method and Estimate But-For Revenues ................................................................ 35

The "Before-and-After" Method ................................................................................................................... 36

Figure 6.1. Historical Revenues for 11th Location ....................................................................................... 37

The "Yardstick" (or "Benchmark") Method ................................................................................................. 38

Measurement Based on the Terms of the Contract ....................................................................................... 39

Other Methods .............................................................................................................................................. 40

Past and Future Lost Revenues ......................................................................................................................... 40

Figure 6.2. Summary of Lost Revenues ........................................................................................................ 41

Do the Lost Revenues Make Sense and Are They Reasonable? ...................................................................... 41

Scenarios ........................................................................................................................................................... 42

Chapter 7 — Costs .............................................................................................................................................. 43

Overview ........................................................................................................................................................... 43

Variable, Marginal, Incremental, Saved, Avoided, and Fixed Costs ................................................................ 43

Evaluation of Specific Cost Line Items ............................................................................................................ 45

Figure 7.1. Historical Company Cost Analysis ............................................................................................ 45

Figure 7.2. Total Company Food Expense Compared to Total Food and Beverage Revenue ..................... 46

Figure 7.3. Executive Compensation Expense Compared to Total Food and Beverage Revenue ............... 47

Statistical Analysis ............................................................................................................................................ 48

Figure 7.4. Selected Regression Output: Exec. Comp. Expense Regressed Against Total Food and
Beverage Revenue ........................................................................................................................................ 48

6 © 2020 Association of International Certified Professional Accountants