Opportunity cost

The return given up by choosing one use of money, time or capacity over the best alternative. It never appears in the accounts, which is why it is easy to forget and expensive to ignore.

Leave ₹10,00,000 in a current account earning nothing and it costs you ₹70,000 a year if a government bond would have paid 7%, even though no statement will ever show that loss. The same logic sets a discount rate. The cost of equity is the return shareholders could earn elsewhere at similar risk, and a project that can't beat it destroys value while still reporting a profit.

Companies meet it most often in capital allocation. Cash held for years earning treasury rates, a plant kept running for a product that barely covers its variable cost, a manager's attention spent on a small division: each costs what the resource could have done instead.

Compare every use with the next best one.