GMROI (Gross Margin Return on Inventory Investment)
indicates how much gross margin you get back for each dollar “invested” in inventory. Through careful analysis, you can see which lines, departments or categories are the most rewarding for your inventory investment. And which are least productive!
GMROI% = Annual Sales divided by Average Inventory at Cost times Gross Margin %
For example, consider this merchandise category:
Annual Sales: $130,000. Average Inventory at Cost: $40,625. Gross Margin: 49%
GMROI % = $130,000 / $40,625 X 49%
GMROI% = 157%
The inventory investment in this example category is generating a 157% return in gross margin. Or, stated another way, for the year this retailer is getting $1.57 in gross margin back for every $1.00 invested in inventory in this category.
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