By including both the cost of paid-up capital and off-balance-sheet capital, managers and investors would be more accurate in their estimates of a company's true cost of capital, and therefore of a company's real value.

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"Massmart is well positioned as a springboard for sub-Saharan Africa, but we believe that it will take a much longer time period for the company to earn its cost of capital in Africa, " said Janney Montgomery Scott analyst David Strasser.

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In valuing the company, we use a cost of capital of 11.42%, which would put Facebook in the top quartile of publicly traded U.S. firms in terms of risk.

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The value of a company should be based on the value of its future free cash flows discounted at its cost of capital.

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They said "the company's cash position has been severely eroded by the cost of the capital project".

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The notion behind the yardsticks is simple: a company creates value only if the return on its capital is greater than the opportunity cost of it, or the rate that investors could earn by investing in other securities with the same risk.

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Accounting ignores these critical details while finance incorporates them by using cash flow metrics rather than earnings metrics and a cost of capital measure that reflects current interest rates plus a component for a company's overall riskiness.

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