GMROII

GMROII

Gross Margin Return on Inventory Investment (GMROII) is a ratio in microeconomics that describes a seller's income on every unit of currency spent on inventory. It is one way to determine how valuable the seller's inventory is, and describes the relationship between total sales, total profit from total sales, and the amount of resources invested in the inventory sold. A seller will aim for a high GMROII. Since the inventory is a very widely-ranging factor in a seller's investment, it is important for the seller to know how much he might expect to gain from it. The GMROII answers the question "for each unit of currency at cost, how many units of currency of gross profit will I generate in one year?" GMROII is traditionally calculated by using one year's gross profit against the average of 12 or 13 units of inventory at cost. A rule of thumb is that a GMROII of at least 3.2 is the breakeven for a business.