Diminution in Value
Definition
The reduction in the market value of a business or asset attributable to the defendant's conduct. Used when lost profits are not available or not the most appropriate measure, particularly for businesses without earnings history or for harm to capital assets.
- Measures
- Loss in market value of a business or asset
- Used when
- Lost profits are unavailable or inappropriate
- Typical for
- Businesses without earnings history, capital-asset harm
- Field
- Forensic accounting damages quantification
Common questions
How does diminution in value differ from a lost-profits calculation?+
Lost profits estimate the income stream the business would have earned; diminution in value instead compares the asset's or business's fair market value before and after the defendant's conduct, which suits cases where an earnings history is too thin to project forward reliably.
What evidence supports a diminution-in-value opinion?+
Comparable sales or valuation multiples, appraisals, and sometimes discounted cash flow analysis of the impaired asset, with the before-and-after comparison isolated from unrelated market movements affecting value over the same period.
Related terms
- Avoided Costs
- The costs the claimant did not incur because the wrongful conduct interrupted operations. In a lost-profits calculation, avoided variable costs are deducted...
- But-for Scenario
- The hypothetical financial position the claimant would have been in had the wrongful conduct not occurred. The damages figure is the difference...
- Discount Rate
- The rate used to convert future projected cash flows to their present value. It reflects the time value of money and the...
- Lost Profits
- The net income the claimant would have earned during the damages period but for the defendant's wrongful conduct. It focuses on the...
- Unjust Enrichment
- A damages measure that focuses on the benefit the defendant gained from the wrongful conduct rather than the loss the claimant suffered....