A core question in many antitrust, regulatory, and damages matters is whether a firm is earning excessive profits, i.e., more than a competitive return on its invested capital, in other words, whether it is earning economic profits. A firm earns economic profits when the economic return on its invested capital exceeds the risk-adjusted required return on such capital (cost of capital). While the economic question is typically straightforward to state, it is complex and sometimes not possible to answer. The analytical complexity, and the reason this work requires specialized expertise in accounting, economics, and finance, is that accounting-based rates of return (rates of return based on a company's financial statements) do not accurately measure economic returns, and the two are often substantially different. The accounting-based rate of return based on a company's financial statements can far exceed its true economic return for reasons that have nothing to do with anti-competitive issues such as market power and everything to do with how the accounting rules require firms to record investments and expenses in a way that is inconsistent with the underlying economics. We have the expertise and experience needed to thoroughly and correctly analyze and measure economic profits and economic returns. Our work is based on widely-accepted and standard methodologies, frameworks, and analyses and we have been engaged by both plaintiffs and defendants in a wide range of industries in such matters.
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