GMROI can be described as?

GMROI can be described as?

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

Answer: (A)

GMROI measures how much gross profit a retailer earns for every dollar tied up in inventory. It combines gross margin with the cost of the inventory to show the profitability of the inventory investment, not just how fast inventory turns over. That makes the description “How Much Money Is Made for Every Dollar Spent on Inventory” the best fit, since it directly conveys the idea of profit generated per dollar invested in inventory. In practice, GMROI is calculated by dividing gross margin by the average inventory cost. For example, if a product line yields $40 in gross margin per period and the average inventory cost for that line is $20, the GMROI is 2.0, meaning $2 of gross margin for every $1 invested in inventory. This helps compare different lines or categories to see which ones make better use of inventory dollars. GMROI isn’t just an inventory turnover measure (which looks at how quickly inventory sells) and it isn’t the gross margin percentage (which relates gross margin to net sales rather than inventory investment). It also isn’t return on assets (which uses total assets and net income).

GMROI measures how much gross profit a retailer earns for every dollar tied up in inventory. It combines gross margin with the cost of the inventory to show the profitability of the inventory investment, not just how fast inventory turns over. That makes the description “How Much Money Is Made for Every Dollar Spent on Inventory” the best fit, since it directly conveys the idea of profit generated per dollar invested in inventory.

In practice, GMROI is calculated by dividing gross margin by the average inventory cost. For example, if a product line yields $40 in gross margin per period and the average inventory cost for that line is $20, the GMROI is 2.0, meaning $2 of gross margin for every $1 invested in inventory. This helps compare different lines or categories to see which ones make better use of inventory dollars.

GMROI isn’t just an inventory turnover measure (which looks at how quickly inventory sells) and it isn’t the gross margin percentage (which relates gross margin to net sales rather than inventory investment). It also isn’t return on assets (which uses total assets and net income).