Gross margin return on inventory investment (GMROI)
The Gross Margin on Return on Return on Inventory Investment (GMROI) is an indicator of inventory productivity that calculates how much is received for each euro invested in the inventory.
The formula is as follows:
GMROI = (Sales in the year / Average inventory cost) x % Gross Margin
Average inventory cost is the average cost of inventory during the year.
Gross margin is calculated as follows: (Sales - Cost of goods) / Sales
The higher this indicator, the higher the return on investment for your inventory. In general, GMROI values under 1 indicate that the business is not profitable, while values above 1 mean that items are selling for more than they cost, generating profits for the company.