Adjusted Gross Margin

A A A

DEFINITION

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



INVESTOPEDIA EXPLAINS

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




RELATED TERMS
  1. Cost Of Revenue

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

    The average number of days it takes for a firm to sell to consumers a product ...
  3. Gross Profit

    A company's revenue minus its cost of goods sold. Gross profit is a company's ...
  4. Cost Of Goods Sold - COGS

    The direct costs attributable to the production of the goods sold by a company. ...
  5. Shrinkage

    The loss of inventory that can be attributed to factors including employee theft, ...
  6. Earnings Per Share - EPS

    The portion of a company's profit allocated to each outstanding share of common ...
  7. Return On Investment - ROI

    A performance measure used to evaluate the efficiency of an investment or to ...
  8. Working Capital

    This ratio indicates whether a company has enough short term assets to cover ...
  9. Amortization

    1. The paying off of debt in regular installments over a period of time. 2. ...
  10. Net Present Value - NPV

    The difference between the present value of cash inflows and the present value ...
Related Articles
  1. Venturing Into Early-Stage Growth Stocks
    Investing

    Venturing Into Early-Stage Growth Stocks

  2. Analyzing Retail Stocks
    Fundamental Analysis

    Analyzing Retail Stocks

  3. Measuring Company Efficiency
    Fundamental Analysis

    Measuring Company Efficiency

  4. A Look At Corporate Profit Margins
    Markets

    A Look At Corporate Profit Margins

  5. Investing In Natural Gas? Eye ETFs, ...
    Investing News

    Investing In Natural Gas? Eye ETFs, ...

  6. Fracking ETFs Or Drilling Services Stocks?
    Investing News

    Fracking ETFs Or Drilling Services Stocks?

  7. How To Use The Top Yahoo! Finance Tools
    Fundamental Analysis

    How To Use The Top Yahoo! Finance Tools

  8. Getting On The Right Side Of The P/E ...
    Fundamental Analysis

    Getting On The Right Side Of The P/E ...

  9. What The Dow Means And Why We Calculate ...
    Fundamental Analysis

    What The Dow Means And Why We Calculate ...

  10. Top 8 Ways Companies Cook The Books
    Personal Finance

    Top 8 Ways Companies Cook The Books

comments powered by Disqus
Hot Definitions
  1. Leased Bank Guarantee

    A bank guarantee that is leased to a third party for a specific fee. The issuing bank will conduct due diligence on the creditworthiness of the customer looking to secure a bank guarantee, then lease a guarantee to that customer for a set amount of money and over a set period of time, typically less than two years.
  2. Degree Of Financial Leverage - DFL

    A ratio that measures the sensitivity of a company’s earnings per share (EPS) to fluctuations in its operating income, as a result of changes in its capital structure. Degree of Financial Leverage (DFL) measures the percentage change in EPS for a unit change in earnings before interest and taxes (EBIT).
  3. Jeff Bezos

    Self-made billionaire Jeff Bezos is famous for founding online retail giant Amazon.com.
  4. Re-fracking

    Re-fracking is the practice of returning to older wells that had been fracked in the recent past to capitalize on newer, more effective extraction technology. Re-fracking can be effective on especially tight oil deposits – where the shale products low yields – to extend their productivity.
  5. TIMP (acronym)

    'TIMP' is an acronym that stands for 'Turkey, Indonesia, Mexico and Philippines.' Similar to BRIC (Brazil, Russia, India and China), the acronym was coined by and investor/economist to group fast-growing emerging market economies in similar states of economic development.
  6. Pension Risk Transfer

    When a defined benefit pension provider offloads some or all of the plan’s risk – e.g.: retirement payment liabilities to former employee beneficiaries. The plan sponsor can do this by offering vested plan participants a lump-sum payment to voluntarily leave the plan, or by negotiating with an insurance company to take on the responsibility for paying benefits.
Trading Center