When should I use DCF instead of before and after for lost profits?

Discounted cash flow (DCF) is typically preferred where the loss extends far into the future, where the business lacks a stable pre-event history suitable for before-and-after comparison, or where projected cash flows (rather than historic margins) are the most reliable basis for quantifying lost profits — for example long-duration IP, franchise termination, or investment-treaty claims. Before and after is preferred where reliable pre-event trading history exists and the loss period is defined.

How is market share loss calculated?

Market share analysis estimates lost profits by reference to the claimant's lost share of an addressable market, typically using industry data, competitor performance, or econometric modelling. It is frequently applied in competition law and cartel damages claims where the loss is industry-wide rather than limited to the claimant's own trading history.

What is the before and after method for loss of profits?

The before and after method (also called the before and after approach) is a loss of profits quantification methodology that compares the financial performance of a business before the event that caused the loss with its performance after the event. The difference in revenue or profit — adjusted for non-event factors — represents the loss. It is most commonly used where the claimant has a reliable pre-event trading history.

What is the yardstick method for loss of profits?

The yardstick method (also called the comparable business method) quantifies loss of profits by reference to the financial performance of a comparable business — one that was not affected by the event that caused the claimant's loss. It is particularly useful where the claimant is a new business without an established trading history, or where pre-event records are unavailable or unreliable.

Expertise

Loss of Profits Methodologies & Practice Areas

Loss of Profits Expert is a global forensic accounting and financial expert witness firm specialising exclusively in the quantification of financial loss arising from loss of profits claims — commercial disputes, business interruption, breach of contract, IP infringement, professional negligence, and international arbitration. This page is the plain-English guide to how loss of profits is quantified — and why methodology choice determines whether an expert report withstands cross-examination.

Loss of Profits Methodologies

Five Core Approaches

Each methodology has a defined application window. Selecting the wrong approach is the most common vulnerability in opposing expert reports.

Methodology	When Applied	Typical Claim Types
Before & After	Established business with pre-event trading history	Breach of contract, business interruption
Yardstick / Comparable	When claimant's own data is unavailable or unreliable	New business, lost opportunity claims
Discounted Cash Flow	Long-duration loss claims, projected future profits	IP infringement, franchise termination
Incremental Analysis	Specific contract losses	Individual contract breach claims
Market Share	Industry-wide market data available	Cartel damages, competition law

before and after

Before & After

The before and after method compares the financial performance of a business before the wrongful event with its performance after the event. The differential in revenue or profit — adjusted for non-event factors such as market conditions, seasonality, and management decisions — represents the loss of profits.

How it is calculated. Identify a clean pre-event baseline period; measure post-event performance over the loss period; isolate and remove non-event drivers; calculate the residual shortfall in revenue and convert to lost profit using appropriate margins and cost behaviour.

Limitations. Requires reliable pre-event records. Less suitable for start-ups, short trading histories, or markets that changed fundamentally at the same time as the event.

Typical claim types: Breach of contract, business interruption. When applied: Established business with pre-event trading history.

See our Business Interruption Loss service for related expert instruction contexts.

yardstick

Yardstick / Comparable

The yardstick (comparable business) method quantifies loss by reference to the financial performance of a comparable business that was not affected by the event. It reconstructs what the claimant would have earned by using a peer, franchise cohort, or industry comparator as the yardstick.

How it is calculated. Select comparable entities on size, geography, product mix, and life-cycle; map their revenue and margin trajectory over the loss period; adjust for documented differences; apply the resulting opportunity path to the claimant.

Limitations. Comparability is contestable. Poor peer selection is a frequent attack line in cross-examination.

Typical claim types: New business, lost opportunity claims. When applied: When claimant's own data is unavailable or unreliable.

See our Loss of Profits Quantification service for related expert instruction contexts.

discounted cash flow

Discounted Cash Flow

Discounted cash flow (DCF) projects the future cash flows the business would have earned but for the event, then discounts those cash flows to present value using an appropriate discount rate reflecting risk and the time value of money.

How it is calculated. Build a counterfactual cash-flow forecast; apply realistic growth, margin, and working-capital assumptions; select a discount rate consistent with the claim's risk profile; discount to the valuation or damages date; sensitivity-test key drivers.

Limitations. Sensitive to discount rate and terminal assumptions. Requires clear disclosure of every material input.

Typical claim types: IP infringement, franchise termination. When applied: Long-duration loss claims, projected future profits.

See our IP Infringement Loss service for related expert instruction contexts.

incremental

Incremental Analysis

Incremental analysis measures the incremental revenue that would have been earned from a discrete contract or opportunity, less the incremental costs that would have been incurred to generate that revenue.

How it is calculated. Model contract volumes, pricing, and delivery costs but for the breach; deduct only incremental costs; account for mitigation through substitute contracts; present expectation and reliance measures where relevant.

Limitations. Depends on isolating incremental versus fixed costs. Over-allocation of overheads is a common methodological error.

Typical claim types: Individual contract breach claims. When applied: Specific contract losses.

See our Breach of Contract Loss service for related expert instruction contexts.

Practice Areas

Eight Commercial Contexts

Loss of profits issues arise across commercial litigation. The financial questions differ by practice area — the discipline of quantification does not.

LOP-01

Commercial Disputes

Revenue loss, profit margin analysis, market share

LOP-02

Business Interruption

Gross profit loss, period of indemnity, trends

LOP-03

Breach of Contract

Expectation loss, reliance loss, wasted expenditure

LOP-04

IP Infringement

Reasonable royalty, actual lost profits, price erosion

LOP-05

Competition Law

Overcharge, lost profits, pass-on defence

LOP-06

Professional Negligence

Lost business opportunity, lost contract value

LOP-07

Franchise & Licensing

Lost royalties, territory exclusivity loss

LOP-08

Post-M&A Disputes

Earnout disputes, warranty claims, completion accounts

FAQ

Methodology Questions

When should I use DCF instead of before and after for lost profits?: Discounted cash flow (DCF) is typically preferred where the loss extends far into the future, where the business lacks a stable pre-event history suitable for before-and-after comparison, or where projected cash flows (rather than historic margins) are the most reliable basis for quantifying lost profits — for example long-duration IP, franchise termination, or investment-treaty claims. Before and after is preferred where reliable pre-event trading history exists and the loss period is defined.
What is incremental analysis in lost profits?: Incremental analysis quantifies loss by comparing the incremental revenue that would have been earned from a specific contract or opportunity with the incremental costs that would have been incurred to generate that revenue. It is commonly used for individual contract breach claims where the loss is attributable to a discrete commercial relationship rather than to the business as a whole.
How is market share loss calculated?: Market share analysis estimates lost profits by reference to the claimant's lost share of an addressable market, typically using industry data, competitor performance, or econometric modelling. It is frequently applied in competition law and cartel damages claims where the loss is industry-wide rather than limited to the claimant's own trading history.
What is the before and after method for loss of profits?: The before and after method (also called the before and after approach) is a loss of profits quantification methodology that compares the financial performance of a business before the event that caused the loss with its performance after the event. The difference in revenue or profit — adjusted for non-event factors — represents the loss. It is most commonly used where the claimant has a reliable pre-event trading history.
What is the yardstick method for loss of profits?: The yardstick method (also called the comparable business method) quantifies loss of profits by reference to the financial performance of a comparable business — one that was not affected by the event that caused the claimant's loss. It is particularly useful where the claimant is a new business without an established trading history, or where pre-event records are unavailable or unreliable.

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