Gross margin return on inventory investment (GMROI)

Gross margin return on inventory investment compares gross profit with average inventory cost over a period. It helps a retailer judge whether the margin earned from a product range justifies the money tied up in its stock.

A common formula is gross profit for the period divided by average inventory at cost. The result is a ratio, usually interpreted as gross profit earned per unit of money invested in average stock. Both values must cover the same period, and the measure does not deduct all the business's operating costs.

For example, £60,000 gross profit on £30,000 average inventory gives a GMROI of 2.0. Faster inventory turnover or better gross margin can improve the result. It helps compare stock productivity, but products with different seasonality or strategic roles may need more context than a single ratio.