Opportunity cost
In one sentenceThe benefit you give up when you choose an alternative; it equals the return of the best other alternative that was available to you and that you did not choose.
Simply put
It does not appear in the books because it is not an amount paid, but it is real in the decision. A warehouse you own is not free if you could rent it out.
When comparing two alternatives, calculate the profit of each, then ask: how much do I lose if I don't choose the better one?
Worked example
A trader has funds he can invest in a new branch with an expected profit of 60,000 SAR a year, or in expanding the warehouse with an expected profit of 45,000 SAR, and he cannot do both.
New branch profit60,000 SAR
Warehouse expansion profit45,000 SAR
Opportunity cost of choosing the warehouse60,000 SAR (he loses 15,000 compared with the better option)
Don't confuse it with
Sunk costA sunk cost was paid in the past and does not enter the decision, while opportunity cost is a future benefit that does.