HOW TO CALCULATE PROFITS?

As part of our business, we were often requested to carry out expert reports documenting any type of accident that has resulted in material damage, termination of productive activity, etc., hence leading to a substantial loss of profits.

The loss of profits is a form of property damage that consists of the loss of a legitimate gain or an economic benefit by the victim or his/her relatives as a result of the damage, and that this loss would have occurred if the damaging event had not been verified. Therefore, it represents what has been lost and what would have been earned if the damage has not taken place.

Loss of profits occurs when there is a loss of a certain benefit perspective. For example, the merchant whose product has been destroyed may claim its price as well as the benefit that would have been earned.

In order to grant a compensation for loss of profits, the law requires two conditions:

– That the existence of the loss of profit can be verified, and its direct relationship to the damage can be established.

– That the lost amount can be economically determined.

The example scenario involves a seafood restaurant:

Because of the medium-term power outage, the restaurant lost the use of the refrigeration and freezing rooms that were installed on the top floor of the seafood restaurant, thus they were unable to keep the existing stocks in perfect condition, both for immediate and long term consumption.

A determining factor in understanding the type of product stored in this kind of “Seafood restaurant” business is that it is common practice to carry out the purchase of seasonal products in particular months, or prior to consumption to make use of advantageous prices. Thus, the product is purchased during its peak season when there is abundant quantities and better quality.

To carry out our activities and conduct a valuation assumption, one must study the following points:

– Check and measure the damaged goods.

– Study the fixed costs of the establishment. (Tenancies, staff, consumptions, insurances, etc.)

– Request the balance sheet of the billing declared by the establishment. (Depending on the type of business, it can involve more “complicated” separate accounts, cash., etc.)

After analyzing all this data, and implementing the applicable regulations:

In view of the developed expert activities, the undersigned expert issues the following conclusions:

– He discloses that there has been some damage to goods, measured at an average amount of € 24,000. This consists of stored merchandise whose consumption was expected during the days when the seafood restaurant was closed because of the power outage.

– Some incurred fixed costs amonted to € 4,112.16.

– A loss of gross turnover of € 31,040.00. We will deduct from this amount 40% for goods / product / inventories, and the amount of incurred fixed costs estimated at € 4,112.16 resulting in a net turnover of € 14,511.84.

Gross turnover * 60 % (with a deduction of 40 %) – Fixed costs of the 11 days = 14.511,84 €

31.040,00 € * 60 % = 18.624,00 € – 4.112,16 € = 14.511,84 €

– estimated global financial claim amount: 38.511,84 €

Estimate of lost goods 24.000 € + Net turnover 14.511,84 €

24.000,00 € + 14.511,84 € = 38.511,84 €

Statements, date and signature.

Given the existing circumstances, expectations and consequences that resulted from the present opinion, that we make subject to any better founded case, undertaking to tell the truth, having acted as objectively as possible, and taken into consideration both what may favor as well as what may cause damage to any of the parties, being aware of the criminal penalties which we may incur if we violate our duty as an expert, we hereby signed this document to the best of our knowledge and belief.