GMROI is defined as the gross margin return on an investment over a given period of time. It measures the profitability of a retailer's inventory by comparing the gross profit earned to the average inventory cost.
The formula to calculate the GMROI is:
GMROI=(GPAIC)×100
Where:
Let's say the gross profit is $50,000 and the average inventory cost is $25,000. Using the formula:
GMROI=(5000025000)×100
We get:
GMROI=200
So, the GMROI is 200%.