Direct damage to property is only part of what a business loses in wartime. If the destruction of a workshop, warehouse or equipment forced the company to halt operations or made full-scale activity impossible, it forgoes profit every month. These losses have a legal name — loss of profit — and their amount can be determined and recovered.
The Kanzas company performs loss of profit valuations under Section IV of Methodology 3904/1223 — "Methodological Framework for Valuing (Determining the Amount of) Loss of Profit (Foregone Earnings)". Tellingly, loss of profit is part of the Methodology's official title: the state has explicitly provided for its compensation.
What loss of profit means under the Methodology
It is the amount of profit accumulated over a defined period that the owner (balance holder, user) of the damaged, lost or destroyed property could have earned had the property not been affected by military operations (para. 2, Section IV).
The valuation applies to property intended for commercial activity: agricultural, fishery and forestry real estate, investment property and property with commercial potential, integral property complexes of enterprises, corporate shares, and business-related assets.
An important methodological requirement: under the Methodology, loss of profit is determined for property whose owner has suffered actual damages that caused the loss. A loss of profit valuation therefore usually goes hand in hand with a war damage valuation. Where profit has been lost for other war-related reasons (without direct damage to property), a valuation is still possible — with a substantiated deviation from the Methodology under the Law of Ukraine "On Valuation of Property…" and valuation standards.
How it is calculated
The Methodology prescribes a cash flow compounding method:
- the compounding period is determined — from the date the right was infringed (the property damaged) until three months after the termination or lifting of martial law, plus the time needed to prepare the site (demining, dismantling, site preparation) and the time of technical reinstatement of the asset;
- annual cash flows are calculated and converted to monthly amounts;
- the compounding rate is substantiated;
- the future value of the cash flows at the end of the period is determined.
The cash flow is denominated in a notional monetary unit — the US dollar (para. 3, Section IV), which protects the calculation from inflationary distortion and makes it suitable for international bodies.
When the valuation is appropriate
The baseline condition is profitable operations in 2020 and 2021: if the business was loss-making in those years, loss of profit is not determined under the Methodology (para. 4). The exception is state-owned or municipal enterprises, or enterprises with state participation, of major public significance: for them a valuation is possible with a separate substantiation.
The key source documents are therefore the financial statements for 2020–2021, together with pre-war operating figures and contracts.
Deliverable
A loss of profit valuation report with supporting documents — for a compensation claim or a lawsuit before a Ukrainian or international court. The Kanzas company's track record covers loss of profit valuations for both state-owned and private enterprises; the reports have passed review by the State Property Fund of Ukraine.
Loss of profit unrelated to the war (trademark infringement, breach of obligations by partners, unlawful acts of public authorities) is a separate service: Loss of Profit Valuation.
Loss of profit is among the most demanding valuation assignments, and the quality of the substantiation decides the outcome in court. We offer meticulous work with your financial statements, realistic timelines and an individual approach to the specifics of your business. Email or message us — we will assess the prospects of your case.
FAQ
Can loss of profit be valued if the property is undamaged? Yes, with a substantiated deviation from the Methodology.
Why is the calculation in US dollars? It is a requirement of the Methodology — the notional monetary unit.
What period does the calculation cover? The compounding period under para. 5.1 of Section IV.
