Profitability measurement and asset valuation

Profitability analysis is important in much of our work. In competition cases, high profits may be used as evidence of market power or excessive pricing. Unduly low profits may indicate predatory pricing or margin squeeze. In litigation cases, damages claims are often based on loss of profits, requiring robust estimates of past or future profitability under the relevant counter-factual. In our strategy work, reliable measures of profitability are important in evaluating the success of specific projects or products.

We often work with the concept of economic profitability, replacing accounting measures of costs and revenues with their economic counterparts. Frontier is experienced in using published accounting information and management data as the basis for such analysis. This requires us to work closely with clients and industry experts to understand the scale and nature of any adjustments that need to be made.

One of the most important aspects of measuring economic profitability is the appropriate valuation of assets. We are familiar with the techniques used to value both tangible and intangible assets.

We also use our expertise in estimating the cost of capital in our profitability assessments. This allows us to find out the extent to which profits may be considered high or low relative to the outturn we would expect to see in a competitive environment.

Read more about our competition and strategy work.

Read more about our cost of capital work.

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