1. What is Gross Margin Return On Investment?

Gross Margin Return On Investment (GMROI) is a financial metric that measures how much gross profit a company earns for every dollar invested in inventory. It helps retailers and businesses evaluate the profitability of their inventory investments.

2. How Does the Calculator Work?

The calculator uses the GMROI formula:

Where:

• \( GP \) — Gross Profit ($)
• \( So \) — Opening Stock ($)
• \( Sc \) — Closing Stock ($)

Explanation: The formula calculates the return on inventory investment by dividing gross profit by the average inventory value, then multiplying by 100 to get a percentage.

3. Importance of GMROI Calculation

Details: GMROI helps businesses identify which products are generating the best returns on inventory investment, optimize inventory levels, and make informed purchasing decisions to maximize profitability.

4. Using the Calculator

Tips: Enter gross profit in dollars, opening stock value in dollars, and closing stock value in dollars. All values must be valid positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What is a good GMROI value?
A: Generally, a GMROI above 100% is considered good, meaning you're earning more than your inventory investment. The higher the GMROI, the better the inventory performance.

Q2: How often should GMROI be calculated?
A: GMROI should be calculated regularly, typically monthly or quarterly, to monitor inventory performance and make timely business decisions.

Q3: What's the difference between GMROI and regular ROI?
A: GMROI specifically focuses on inventory investment returns, while regular ROI measures return on overall investment across all business assets.

Q4: Can GMROI be negative?
A: Yes, if gross profit is negative (cost of goods sold exceeds revenue) or if inventory values are mismanaged, GMROI can be negative.

Q5: How can I improve my GMROI?
A: Strategies include optimizing pricing, reducing inventory carrying costs, improving inventory turnover, and focusing on high-margin products.