Adjusted Gross Margin


DEFINITION of 'Adjusted Gross Margin'

A calculation used to determine the profitability of a product, product line or company. The adjusted gross margin includes the cost of carrying inventory, whereas the gross margin calculation does not take this into consideration. The adjusted gross margin, therefore, provides a more accurate look at the profitability of a product than the gross margin allows. The equation is as follows:

n Period Gross Profit Dollars – n Period Carrying Cost Dollars
n Period Sales Dollars


Adjusted gross margin goes one step further than gross margin because it includes these inventory carrying costs, which greatly affect the bottom line of a product's profitability. For example, two products could have identical, 25% gross margins. Each, however, could have different associated inventory carrying costs. Once these factors are included, the two products could show significantly different margins and profitability. This can help identify products and lines that are underperforming.

Inventory carrying costs include:
-Receiving and transferring inventory
-Insurance and taxes
-Warehouse rent and utilities
-Inventory shrinkage
-Opportunity cost

  1. Cost Of Revenue

    The total cost of manufacturing and delivering a product or service. ...
  2. Average Age Of Inventory

  3. Gross Profit

    A company's revenue minus its cost of goods sold. Gross profit ...
  4. Shrinkage

    The loss of inventory that can be attributed to factors including ...
  5. Cost Of Goods Sold - COGS

  6. Convention Statement

  1. What are Manchester United's (MANU) largest revenue sources?

  2. What is the average price-to-earnings ratio in the chemicals sector?

  3. For what types of investments is the payout ratio the most relevant?


  5. What is the justification for allowing deferred tax liabilities?

  6. How is overhead distributed through total absorption costing?

Related Articles
  1. Fundamental Analysis

    Measuring Company Efficiency

  2. Markets

    A Look At Corporate Profit Margins

  3. Investing

    Venturing Into Early-Stage Growth Stocks

    Picking these potential winners is all about sizing up risk. We show you how.
  4. Fundamental Analysis

    Analyzing Retail Stocks

  5. Home & Auto

    Buying a Home? The Best Places Share This Feature

  6. Technical Indicators

    6 Stocks for Millennials (or Anyone)

  7. Personal Finance

    Top Healthcare, Medical Equipment Stocks of 2015

  8. Investing Basics

    Explaining Write-Downs

  9. Investing

    What A Rate Hike May Mean For Stocks

  10. Fundamental Analysis

    How to Calculate a Coverage Ratio


You May Also Like

Hot Definitions
  1. Stop-Loss Order

  2. Covered Call

  3. Butterfly Spread

  4. Unlevered Beta

  5. Moving Average - MA

  6. Yield Curve

Trading Center