Skip to main content
diversification.com
← Back to A Definitions

Adjusted growth sales

What Is Adjusted Growth Sales?

Adjusted Growth Sales refers to the rate at which a company's sales are increasing or decreasing, after the initial revenue figures have been modified to exclude certain non-recurring, non-operational, or distorting factors. This metric falls under the broader category of financial reporting and analysis, providing a more refined view of a company's underlying sales trajectory. While revenue and gross sales represent the total top-line figures, Adjusted Growth Sales takes into account specific adjustments that offer deeper insight into core operational performance. Common adjustments can include the impact of foreign currency fluctuations, acquisitions and divestitures, or one-time special items. By presenting Adjusted Growth Sales, companies aim to provide a clearer picture of their organic or normalized growth, which is often crucial for financial analysis and investor assessment of ongoing business momentum.

History and Origin

The concept of adjusting sales figures for various factors has evolved alongside the increasing complexity of global business operations and the demands for greater transparency in financial statements. As companies expanded internationally, foreign exchange rates began to significantly impact reported sales, leading to the practice of reporting sales on a constant currency basis to reflect true operational growth. Similarly, a surge in mergers, acquisitions, and divestitures necessitated the exclusion of these one-time boosts or reductions to present a comparable sales trend from continuing operations.

The emphasis on "adjusted" metrics also gained prominence with the development of accounting standards and regulatory oversight. Bodies like the U.S. Securities and Exchange Commission (SEC) have historically issued Staff Accounting Bulletins (SABs) to provide guidance on revenue recognition, aiming to ensure that companies report their financial performance accurately and consistently. For instance, SAB 104, later updated by SAB 116, provided interpretive guidance on revenue recognition practices under Generally Accepted Accounting Principles (GAAP), influencing how and when sales are recorded and subsequently adjusted for specific conditions9,8. The drive for more insightful reporting has led companies to complement their GAAP or International Financial Reporting Standards (IFRS) disclosures with non-GAAP measures, including various forms of Adjusted Growth Sales, to highlight operational performance. However, this practice also led to scrutiny, as evidenced by cases where the SEC penalized companies like General Electric (GE) for misleading investors regarding their reported profits without adequately explaining the underlying factors and estimates, including those affecting revenue recognition7. This historical context underscores the tension between providing a clean operational view and ensuring full, transparent disclosure of all relevant financial impacts.

Key Takeaways

  • Adjusted Growth Sales offers a refined view of a company's sales performance by removing the impact of specific non-core or non-comparable factors.
  • Common adjustments include foreign currency fluctuations, the effects of acquisitions and divestitures, and one-time unusual items.
  • This metric is particularly valuable for assessing a company's organic growth and the effectiveness of its underlying business strategies.
  • Adjusted Growth Sales helps investors and analysts make more accurate year-over-year comparisons of financial performance.
  • While useful for analysis, the specific adjustments can vary between companies, requiring careful examination of accompanying disclosures.

Formula and Calculation

The calculation of Adjusted Growth Sales involves two primary steps: first, determining the "adjusted sales" for the current and prior periods, and then calculating the growth rate between these adjusted figures.

The basic formula for sales growth is:

\text{Sales Growth Rate} = \frac{(\text{Current Period Sales} - \text{Prior Period Sales})}{\text{Prior Period Sales}} \times 100 $$[^6^](https://www.salesforce.com/blog/calculate-sales-growth-rate/) To derive **Adjusted Growth Sales**, the "Current Period Sales" and "Prior Period Sales" in the above formula would be replaced with "Adjusted Current Period Sales" and "Adjusted Prior Period Sales," respectively. The "Adjusted Sales" figure is typically derived from reported [net sales](https://diversification.com/term/net-sales) by making further modifications. For example:

\text{Adjusted Sales} = \text{Net Sales} \pm \text{Impact of Currency Fluctuations} \pm \text{Sales from Acquisitions/Divestitures} \pm \text{Other Non-Recurring Adjustments}

Where: * **Net Sales:** Gross sales less returns and allowances and [discounts](https://diversification.com/term/discounts).[^5^](https://tollbit.chron.com/calculate-adjusted-gross-sales-22118.html) * **Impact of Currency Fluctuations:** The estimated effect of changes in foreign exchange rates on sales figures, often calculated by re-stating prior period sales using current period exchange rates, or vice-versa. * **Sales from Acquisitions/Divestitures:** The sales generated by businesses acquired or divested during the period, which are removed to show the organic growth of existing operations. * **Other Non-Recurring Adjustments:** Any other specific items that management deems non-representative of ongoing operations and discloses as adjustments. Companies typically explain the specific adjustments made when reporting Adjusted Growth Sales, ensuring transparency in their [financial reporting](https://diversification.com/term/financial-reporting). ## Interpreting the Adjusted Growth Sales Interpreting Adjusted Growth Sales provides critical insights beyond what raw sales figures might convey. When a company presents Adjusted Growth Sales, it often aims to isolate the growth attributable to its core, ongoing business activities, free from external or one-off distortions. For instance, if a company reports high sales growth, but its Adjusted Growth Sales (excluding a recent acquisition) is much lower, it signals that a significant portion of the growth came from expanding via acquisition rather than from increased sales of its existing products or services. Conversely, if reported sales growth is low, but Adjusted Growth Sales (excluding adverse currency impacts) is robust, it indicates strong underlying operational momentum that was obscured by unfavorable exchange rates. Analysts and investors pay close attention to Adjusted Growth Sales because it can offer a more accurate gauge of a company's organic vitality and the effectiveness of its strategic initiatives. Comparing a company's Adjusted Growth Sales with that of its peers in the same industry can highlight competitive strengths or weaknesses, particularly when evaluating long-term [profitability](https://diversification.com/term/profitability) potential. This metric helps in assessing the sustainability of growth and provides a foundation for more reliable forecasting. ## Hypothetical Example Consider a hypothetical technology company, "Tech Innovations Inc." (TII), which operates globally and recently acquired a smaller software firm. **Scenario:** * **Year 1 (Prior Period):** * Net Sales: $100 million * **Year 2 (Current Period):** * Reported Net Sales: $130 million * Sales generated from the acquired software firm in Year 2: $15 million * Negative impact on sales from currency fluctuations in Year 2: $5 million **Step-by-step Calculation of Adjusted Growth Sales:** 1. **Calculate Adjusted Current Period Sales:** * Start with Reported Net Sales: $130 million * Subtract sales from the acquired firm: $130 million - $15 million = $115 million * Add back the negative impact of currency fluctuations (to see what sales would have been without this drag): $115 million + $5 million = $120 million * Adjusted Current Period Sales: $120 million 2. **Calculate Adjusted Growth Sales:** * Using the Adjusted Current Period Sales ($120 million) and the Prior Period Sales ($100 million): $$ \text{Adjusted Growth Sales} = \frac{(\$120 \text{ million} - \$100 \text{ million})}{\$100 \text{ million}} \times 100 $$ $$ \text{Adjusted Growth Sales} = \frac{\$20 \text{ million}}{\$100 \text{ million}} \times 100 $$ $$ \text{Adjusted Growth Sales} = 0.20 \times 100 = 20\% $$ In this example, TII's reported sales growth was 30% (($130M - $100M) / $100M * 100). However, after adjusting for the acquisition and currency impact, the Adjusted Growth Sales is 20%. This 20% figure gives a more accurate representation of the organic growth of TII's core business, allowing for a better assessment of its fundamental [financial health](https://diversification.com/term/financial-health). ## Practical Applications Adjusted Growth Sales finds wide application across various facets of finance and business analysis. In corporate finance, management teams use this metric to track the success of strategic initiatives, evaluate the effectiveness of sales and marketing efforts, and set realistic internal targets. For instance, a multinational corporation might focus on Adjusted Growth Sales (excluding currency impacts) to assess the true performance of its regional divisions, unaffected by exchange rate volatility. Investors and financial analysts extensively use Adjusted Growth Sales in their due diligence processes. When evaluating a company, they often seek to understand the underlying drivers of growth. By looking at adjusted figures, analysts can strip away noise from non-recurring events like large [divestitures](https://diversification.com/term/divestitures) or significant one-off contracts, allowing for a clearer comparison of a company's performance year-over-year or against competitors. Investment research firms, like Research Affiliates, frequently delve into the "quality" of financial metrics, including sales, to identify companies with sustainable growth profiles based on sound accounting practices rather than transient boosts[^4^](https://www.researchaffiliates.com/insights/esg). Furthermore, Adjusted Growth Sales is crucial in valuation models, as analysts use it to project future organic revenue streams, which directly feed into cash flow forecasts and ultimately, a company's intrinsic value. In sectors heavily impacted by commodity prices or geopolitical events, adjusted sales figures can help stakeholders distinguish between market-driven fluctuations and operational successes. For example, during earnings season, news outlets like Reuters often highlight "adjusted" earnings or sales figures to provide context to investors regarding a company's operational performance, separating it from one-time charges or gains[^3^](https://stocktwits.com/news-articles/markets/equity/baker-hughes-posts-upbeat-q2-earnings-sees-ai-power-demand-driving-growth-amid-slowdown-in-oilfield-activity/ch8wlPAR5MW). This allows market participants to make more informed decisions about a company's prospects. ## Limitations and Criticisms While Adjusted Growth Sales can offer valuable insights, it is not without limitations and criticisms. A primary concern is the potential for management discretion in determining what constitutes an "adjustment" and how those adjustments are calculated. Unlike standardized GAAP or IFRS figures reported on the [income statement](https://diversification.com/term/income-statement), adjusted metrics are often non-GAAP and can vary significantly between companies, making cross-company comparisons challenging without careful scrutiny. This lack of standardization can reduce the reliability of the metric if not accompanied by clear, detailed disclosures. Critics argue that companies might selectively adjust figures to present a more favorable growth narrative, potentially obscuring underlying operational weaknesses or masking actual trends in their core business. This practice, if misused, can compromise [earnings quality](https://diversification.com/term/earnings-quality) and mislead investors. Another limitation arises from the inherent subjectivity in estimating certain adjustments, such as the precise impact of currency fluctuations or the allocation of sales attributable to a newly acquired business within a complex corporate structure. These estimations can introduce a degree of imprecision. While organizations like the CFA Institute advocate for transparent and consistent reporting of non-GAAP measures to aid investors, they also emphasize the need for analysts to exercise professional skepticism and understand the judgments involved in preparing these adjusted figures[^2^](https://rpc.cfainstitute.org/sites/default/files/-/media/documents/article/position-paper/revenue-recognition-changes.pdf),[^1^](https://blogs.cfainstitute.org/investor/2018/02/26/revenue-recognition-the-bottom-line-on-the-new-top-line/). Investors should always refer to a company's official financial filings, such as those with the SEC, for the full reconciliation of adjusted figures to their GAAP equivalents to understand the nature and magnitude of each adjustment. ## Adjusted Growth Sales vs. Sales Growth The distinction between Adjusted Growth Sales and simple Sales Growth lies in the underlying sales figures used for the calculation. | Feature | Adjusted Growth Sales | Sales Growth | | :---------------------- | :-------------------------------------------------------------------------------------------------- | :----------------------------------------------------------------------------------- | | **Base Sales Figure** | Utilizes sales figures that have been modified (adjusted) for specific non-core or non-comparable factors. | Uses reported [Net Sales](https://diversification.com/term/net-sales) or Gross Sales directly from the financial statements. | | **Exclusions/Additions** | Excludes or adds back impacts such as foreign currency fluctuations, acquisitions/divestitures, and other non-recurring items. | Typically includes all revenue as reported, without further adjustments for these factors. | | **Purpose** | To provide a clearer view of **organic or normalized operational growth**, enhancing comparability over time and across segments. | To show the **overall percentage change in total reported sales**, irrespective of the underlying drivers. | | **Comparability** | Designed to improve period-over-period and peer-to-peer comparisons by removing distortions. | Can be distorted by significant non-operational events, making true operational trends harder to discern. | While Sales Growth provides a straightforward percentage change in total reported sales from one period to another, Adjusted Growth Sales aims to offer a more insightful and actionable metric by isolating the growth attributable to a company's core, ongoing operations. This adjustment helps clarify where the actual business momentum is originating, separating it from transient or structural changes. ## FAQs ### What types of adjustments are typically made to calculate Adjusted Growth Sales? Common adjustments include removing the impact of foreign currency exchange rate fluctuations, sales generated from newly acquired businesses or lost from divested operations, and any one-time or non-recurring revenue items that are not expected to continue in future periods. These adjustments help focus on the core [operations](https://diversification.com/term/operations) of the business. ### Why do companies report Adjusted Growth Sales if they already report official sales figures? Companies often report Adjusted Growth Sales to provide investors and analysts with a clearer picture of their underlying operational performance and organic growth. Official sales figures (like [Net Sales](https://diversification.com/term/net-sales)) can be influenced by external factors or one-time events that might obscure the true momentum of the business. Adjusted metrics aim to strip away this "noise" for better comparability and understanding of a company's sustained [business model](https://diversification.com/term/business-model). ### Is Adjusted Growth Sales a GAAP measure? No, Adjusted Growth Sales is typically a non-GAAP (Generally Accepted Accounting Principles) measure. This means it is not defined by strict accounting rules and can vary in its calculation from company to company. Companies are usually required to reconcile these non-GAAP figures to their closest GAAP equivalent, providing transparency on how the adjustments were made in their [financial statements](https://diversification.com/term/financial-statements). ### How does Adjusted Growth Sales help in investment analysis? Adjusted Growth Sales helps investment analysts by providing a more reliable basis for forecasting future revenue and assessing the sustainable growth potential of a company. By excluding volatile or non-recurring items, it allows for better trend analysis, competitive benchmarking, and more accurate valuation models, which can inform investment decisions related to [portfolio management](https://diversification.com/term/portfolio-management). ### Can Adjusted Growth Sales be misleading? Yes, Adjusted Growth Sales can be misleading if the adjustments are not clearly defined, consistently applied, or are used to mask underlying weaknesses. Because it's a non-GAAP measure, companies have discretion over what to include or exclude. Analysts and investors should always scrutinize the reconciliation of adjusted figures to GAAP numbers and understand the rationale behind each adjustment to avoid misinterpretation of a company's [fundamentals](https://diversification.com/term/fundamentals).