Opportunity Cost Formula, Calculation, and What It Can Tell You - Deepstash

Keep reading for FREE

What Is Opportunity Cost?

What Is Opportunity Cost?

Opportunity costs represent the potential benefits an individual, investor, or business misses out on when choosing one alternative over another. Because opportunity costs are unseen by definition, they can be easily overlooked.

Understanding the potential missed opportunities when a business or individual chooses one investment over another allows for better decision-making.

14

206 reads

Formula and Calculation of Opportunity Cost

Opportunity Cost = Return on best foregone option (FO) – return on chosen option (CO)

The formula for calculating an opportunity cost is simply the difference between the expected returns of each option. company is faced with the following two mutually exclusive options:

10

174 reads

Opportunity Cost and Risk

The key difference is that risk compares the actual performance of an investment against the projected performance of the same investment, while opportunity cost compares the actual performance of an investment against the actual performance of another investment.

The key difference is that risk compares the actual performance of an investment against the projected performance of the same investment, while opportunity cost compares the actual performance of an investment against the actual performance of another investment.

Still, one could consider opportunity costs when deciding between two risk profiles.

9

115 reads

Economic Profit and Accounting Profit

Opportunity cost is used to calculate different types of company profit.

  • The most common type of profit analysts are familiar with is accounting profit. Accounting profit is the net income calculation often stipulated by Generally Accepted Accounting Principles (GAAP). Only explicit, real costs are subtracted from total revenue.
  • Economic profit (and any other calculation above that considers opportunity cost) is strictly an internal value used for strategic decision-making. There are no regulatory bodies that govern public reporting of economic profit or opportunity cost.

9

74 reads

How Do You Determine Opportunity Cost?

The downside of opportunity cost is it is heavily reliant on estimates and assumptions. There's no way of knowing exactly how a different course of action may have played out financially. Therefore, to determine opportunity cost, a company or investor must project the outcome and forecast the financial impact.

This includes projecting sales numbers, market penetration, customer demographics, manufacturing costs, customer returns, and seasonality.

9

83 reads

CURATED BY

ang_

"There's no money in poetry, but then there's no poetry in money, either." ~ Robert Graves

Considering the value of opportunity costs can guide individuals and organizations to more profitable decision-making.

Ready for the next level?

Read Like a Pro

stash-superman-illustration

Explore the World’s

Best Ideas

200,000+ ideas on pretty much any topic. Created by the smartest people around & well-organized so you can explore at will.

An Idea for Everything

Explore the biggest library of insights. And we've infused it with powerful filtering tools so you can easily find what you need.

Knowledge Library

Powerful Saving & Organizational Tools

Save ideas for later reading, for personalized stashes, or for remembering it later.

# Personal Growth

Take Your Ideas

Anywhere

Organize your ideas & listen on the go. And with Pro, there are no limits.

Listen on the go

Just press play and we take care of the words.

Never worry about spotty connections

No Internet access? No problem. Within the mobile app, all your ideas are available, even when offline.

Get Organized with Stashes

Ideas for your next work project? Quotes that inspire you? Put them in the right place so you never lose them.

Join

2 Million Stashers

4.8

Stars

5,740 Reviews

App Store

4.7

Stars

72,690 Reviews

Google Play

Sean Green

Great interesting short snippets of informative articles. Highly recommended to anyone who loves information and lacks patience.

Shankul Varada

Best app ever! You heard it right. This app has helped me get back on my quest to get things done while equipping myself with knowledge everyday.

samz905

Don’t look further if you love learning new things. A refreshing concept that provides quick ideas for busy thought leaders.

Ashley Anthony

This app is LOADED with RELEVANT, HELPFUL, AND EDUCATIONAL material. It is creatively intellectual, yet minimal enough to not overstimulate and create a learning block. I am exceptionally impressed with this app!

Giovanna Scalzone

Brilliant. It feels fresh and encouraging. So many interesting pieces of information that are just enough to absorb and apply. So happy I found this.

Ghazala Begum

Even five minutes a day will improve your thinking. I've come across new ideas and learnt to improve existing ways to become more motivated, confident and happier.

Laetitia Berton

I have only been using it for a few days now, but I have found answers to questions I had never consciously formulated, or to problems I face everyday at work or at home. I wish I had found this earlier, highly recommended!

Jamyson Haug

Great for quick bits of information and interesting ideas around whatever topics you are interested in. Visually, it looks great as well.

Read & Learn

20x Faster

without
deepstash

with
deepstash

with

deepstash

Access to 200,000+ ideas

Access to the mobile app

Unlimited idea saving & library

Unlimited history

Unlimited listening to ideas

Downloading & offline access

Personalized recommendations

FAQ

Claim Your Limited Offer

Get Deepstash Pro