What does GMROI tell us?

What does GMROI tell us?

• A. Inventory Turnover Rate
• B. Gross Margin Percentage
• C. How Much Money Is Made for Every Dollar Spent on Inventory
• D. Return on Investment

Answer: (C)

GMROI shows how much gross margin you generate for each dollar tied up in inventory. It’s calculated by dividing gross margin by the average cost of inventory, giving a ratio that answers the question: for every dollar invested in inventory, how much gross profit does it produce? This helps you compare how efficiently different product lines, categories, or locations convert inventory into gross profit. It’s different from the inventory turnover rate (how often you sell through stock), from gross margin percentage (gross margin as a share of sales), and from return on investment (net profit relative to total invested capital).

GMROI shows how much gross margin you generate for each dollar tied up in inventory. It’s calculated by dividing gross margin by the average cost of inventory, giving a ratio that answers the question: for every dollar invested in inventory, how much gross profit does it produce? This helps you compare how efficiently different product lines, categories, or locations convert inventory into gross profit. It’s different from the inventory turnover rate (how often you sell through stock), from gross margin percentage (gross margin as a share of sales), and from return on investment (net profit relative to total invested capital).