What is lost profit?

We explain what is lost profits and when this situation occurs. In addition, calculation methods and examples of loss of profit.

1. What is lost profit?

There is talk of a ceasing profit law when a form of property damage occurs that consists in the impediment of a legitimate economic gain or the loss of an economic profit as a result of the actions or decisions of a third party.

Loss of loss, in other words, is the amount of money that would have been earned had an event not occurred or a decision was made that is the responsibility of a third party. This takes place when there is the certainty that such money would have been obtained, for example, in the event that a merchant lost all his merchandise due to a fire propagated from the premises next door.

2. Profit loss in insurance

Thus, in many cases insurance companies offer their insured compensation for loss of earnings, provided they can prove the following:

• That the lost profit does in fact exist and that there is a clear relationship with the damage.
• That it is possible to calculate economically what has been lost.

Litigation regarding lost profits is usually determined in court, taking into account the circumstances, evidence and allegations of the parties, as well as the terms in which the contract was given (if any), since there is no single criterion to govern the subject.

3. Calculation of loss of profit

There is no single method to calculate loss of earnings, and different criteria may apply:

• Calculation method by points . A series of tables or scales are used that contain an arbitration system or measurement of the damage caused, taking into account applicable criteria according to the individual case and the category of damage.
• Linear method . It is used by calculating linearly the income prior to the damage caused by the amount of time that was left (or would not be allowed to be received).
• Profitable capital method . It is determined mathematically what sum of money placed in the banking market would yield an interest that is equivalent to the profits not perceived by the damaged party. In the end, the damaged party will receive the capital accumulated in a compensatory fund.
• Amortization capital method . Similar to the previous one, the monthly amount that stopped receiving the damaged one is calculated mathematically and placed in the financial market to generate the profits of which the lost profit will be replenished. But at the end of the term, there will be no accumulated fund for it.
• Combined methods . Those that combine several of the methods described above.

4. Examples of loss of profit

Some possible cases that illustrate the claim of loss of profit are the following:

• An employee is prevented from working for an illegal decision of his company, and stops receiving his salary for a month. Said money can be claimed from the company once the problem has been resolved, since if the employee had not occurred, he would have received his salary.
• A seller orders a merchandise and it arrives in poor condition, impossible to sell. The seller can claim from the distributor the loss of profits from the sales that would have occurred if the merchandise arrived on time.
• A service company cannot work for a week as a result of a political act by the municipality. The company may claim the loss of profits from its services that otherwise could have been normal.