MastersForum

Quoted

with all due respect to the strategy guide dudes...it's great. I call it the last useful strategy guide. If you have the chance to buy a
copy, buy it.

Here's what it says about Naval battles.
The outcome of every naval battle is the end result of a whole series of meaningful events. The net effect is a result that is most often completely plausible. Of course, just as in reality, things turn out oddly sometimes, and a lucky ship with a green crew may score an unexpected victory.

1 The fleets find themselves in the same sea zone. They may miss each other or there may be an encounter. Privateering Companies make an interception more likely.

2. If the fleets do encounter each other a check is done on the damage of all ships in the battle.

3 Both sides open fire. The results are determined by several seperate calculations. Shipe that are firing at targets beyond there range do a
fraction of the damage inflicted if the target ship is within range.

4 The combined damage is distributed among the target ships.

5. Damage is applied to individual ships. Half the time, the targeted ship takes 2/3 of the applied damage; the other half of the time it takes 1 1/2 the applied damage. This damage is then multiplied by the armor percentage of the ship (the proportion of armor point to hull points), which ranges from 95% for the weakest ships to 40% for the best armored ships. The resulting damage is then applied to the ship's hull points.

6. Both fleets than attempt to maneuver into their preferred firing range or to escape. The fleet that is faster (fleet speed is all the ships speeds averaged) is more successfull at this.

7. If the two fleets are still within firing range (at least one ship has at least one enemy ship within it's firing range) a new round begins and you're back at step 3.

That's all the information I've got. Perhaps one of the developers will chime in.