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
BREAKING DOWN 'Adjusted Gross Margin'
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

Gross Profit
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Cost Of Revenue
The total cost of manufacturing and delivering a product or service. ... 
Average Age Of Inventory
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Cost Of Goods Sold  COGS
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ShortTerm Debt
An account shown in the current liabilities portion of a company's ...

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