An important tool in analyzing inventory, sales and profitability is GMROI (also known as GMROII) which stands for Gross Margin Return On Inventory Investment. The GMROI calculations assist buyers in evaluating whether a sufficient gross margin is being earned by the products purchased, compared to the investment in inventory required to generate those gross margin dollars.

1. Find the average inventory at cost.

2. Calculate the gross margin of the item.

3. Divide the gross margin by the average cost of inventory to get GMROI.

4. The result is a ratio indicating the number of times gross margin is earned from the inventory investment.

1. GMROI calculation can be used to measure the performance the entire shop, but it is more effective if used for a particular department or category of

merchandise.