GMROI is a metric used in retail to assess what?

GMROI is a metric used in retail to assess what?

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

Answer: (B)

GMROI measures how much gross margin profit a retailer earns for each dollar tied up in inventory. It shows profitability relative to the capital invested in inventory by using gross margin (net sales minus cost of goods sold) divided by the average cost of inventory. For example, a GMROI of 1.5 means $1.50 of gross margin is earned for every $1 invested in inventory. This directly answers the idea of how much money is made per dollar spent on inventory, which is why it’s the best choice. In contrast, inventory turnover focuses on how fast inventory sells, gross margin percentage looks at margin relative to sales, and ROI is a broader measure of overall returns on invested capital.

GMROI measures how much gross margin profit a retailer earns for each dollar tied up in inventory. It shows profitability relative to the capital invested in inventory by using gross margin (net sales minus cost of goods sold) divided by the average cost of inventory. For example, a GMROI of 1.5 means $1.50 of gross margin is earned for every $1 invested in inventory. This directly answers the idea of how much money is made per dollar spent on inventory, which is why it’s the best choice. In contrast, inventory turnover focuses on how fast inventory sells, gross margin percentage looks at margin relative to sales, and ROI is a broader measure of overall returns on invested capital.