Evaluate the return generated on inventory investment by comparing gross profit to the cost of goods sold.
Revenue minus cost of goods sold
(Beginning inventory + ending inventory) / 2
Gross Margin Return on Investment (GMROI) evaluates how much gross profit is earned for every dollar invested in inventory. It helps retailers and wholesalers assess inventory profitability.
GMROI
dollars return per dollar invested
Gross Margin
Return per $1 of Inventory
A GMROI above 1.0 means the company earns more in gross margin than it invests in inventory. Above 3.0 is generally excellent.
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