Gross Margin Return on Investment (GMROI)
GMROI (Gross Margin Return on Inventory Investment) indicates how much gross margin you get back for each dollar "invested" in inventory.
A gross margin return on investment (GMROI) is an inventory profitability evaluation ratio that analyzes a firm's ability to turn inventory into cash above the cost of the inventory. It is calculated by dividing the gross margin by the average inventory cost and is used often in the retail industry.
GMROI % = GM % x Annual Sales / Average Inventory Cost
GMROI % = GM / Average Inventory Cost
Total revenue $100m
Gross Margin 65%
Average inventory cost of $20m
GMROI will be 3.25 (65/20) which means having revenues of 325% of costs
Gross Margin Return on Inventory Investment (GMROII)
Gross Margin Return on Inventory Investment (GMROII) is a ratio in microeconomics that describes a seller's return on every unit of currency spent on inventory. It is one way to determine how profitable the seller's inventory is, and describes the relationship between the profit earned from total sales, and the amount invested in the inventory sold. Generally for a seller, the higher the GMROII the better. Since the inventory is a very widely ranging factor in a seller's investment in working capital, it is important for the seller to know how much he might expect to gain from it.