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.
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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 ($)
- AIC is the average inventory cost ($)
To calculate GMROI, divide the gross profit by the average inventory cost, then multiply by 100.
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.