Opportunity Cost Definition
Opportunity Cost Definition

See Also:
The Future of the Accounting Workforce
Future Value
Cost Driver
Certified Public Accountant (CPA)
Auditor

Opportunity Cost Definition

Revenue that has been forfeited for an alternative use of time or facilities. Often times these types of decisions are made because a company or person forgoes an immediate cash stream for hopefully a larger one in the future.

Opportunity Cost Meaning

Opportunity costs decision making is often based on the potential for higher cash streams in the future. This can happen if a company is developing a new product, and in the meantime has available capacity it could rent out. However, the company keeps it idle in hopes that the new product will develop higher cash flows and use the idle capacity.

Opportunity Cost Examples

Here are some common opportunity costs examples:
– A person who just graduated high school has the chance to take a job at a factory or go to college and gain further knowledge. Often times, the student will go to college because he/she believes that they will be able to make more in the long run over the years by investing in an education.
– A company decides that it needs to invest in new software. It may costs a lot, but if the company becomes more efficient it would be worth it. If the costs to maintain the software is reduced and sales increased it could pay for itself and more in the long run.
– A bank has outstanding loans that have broken covenants. The bank could ask for the full amount right now, but often times they will work with the company so the bank can realize the interest payments along with the principal.
Learn how you can be the best wingman with our free How to be a Wingman guide!
Opportunity Cost Definition
[box]Strategic CFO Lab Member Extra
Access your Projections Execution Plan in SCFO Lab. The step-by-step plan to get ahead of your cash flow.
Click here to access your Execution Plan. Not a Lab Member?
Click here to learn more about SCFO Labs[/box]
Opportunity Cost Definition

ARTICLES YOU MIGHT LIKE

Changing Markets Affect on Valuations

Economics back in January 2021 Back in early 2021 there were certain signs that the economy was going to change in some way, and many predicted this change would not be positive.  Post Pandemic in January 2021 the U.S. Government continued to pour billions of dollars into the economy by printing more money. Economics 101

Read More »

The Struggles of Private Company Accounting

Hiring the right accountant  When I meet a business owner operating at a successful $10 million in revenue, they often mention, “My CPA”… I immediately know that CEO/Entrepreneur is referring to their Tax CPA.  That is because one thing that all Entrepreneurs have in common is that they must file a tax return.  So, from

Read More »

Financial Ratios

See also:Quick Ratio AnalysisPrice to Book Value AnalysisPrice Earnings Growth Ratio AnalysisTime Interest Earned Ratio Analysis Use of Financial Ratios Financial Ratios are used to measure financial performance against standards. Analysts compare financial ratios to industry averages (benchmarking), industry standards or rules of thumbs and against internal trends (trends analysis). The most useful comparison when

Read More »

JOIN OUR NEXT SERIES

Financial Leadership Workshop

MARCH 28TH-31ST 2022

THE ART OF THE CFO®

Financial Leadership Workshop

Days
Hours
Min

September 12-15th 2022

Days
Hours
Min
SHARE THIS ARTICLE

JOIN THE NEXT STRATEGIC CFO™ WORKSHOP SERIES

Strategic CFO™ Financial Leadership Workshop
The Art Of The CFO®

Days
Hours
Min

February 27 - March 2, 2023

Skip to content