Enter the total gross profit and the average inventory cost into the calculator to determine the GMROI, known as the gross margin return on investment.
The following formula is used to calculate the GMROI.
GMROI = GP / AIC *100
- Where GMROI is the gross margin return on investment (%)
- GP is the gross profit ($)
- AIC is the average inventory cost ($)
GMROI is defined as the gross margin return on an investment over a given period of time.
How to calculate the GMROI?
- First, determine the gross profit.
Calculate the gross profit after expenses of the business or sector. For this example, we will say this is $50.00
- Next, determine the average cost of inventory.
Calculate the average cost of the inventory being used to generate profit. For this example, we will say this is $25.00.
- Finally, calculate the GMROI.
Using the formula, we find the GMROI to be (50/25)*100 = 200%.
GMROI stands for the gross margin return on investment. It’s a measure of a business’s ability to turn inventory into profit. The higher the GMROI the higher the profitability.