Why is GMROI important? What aspects of GMROI can a buyer control? How does this help the organization?
Expert Answer
GMROI or Gross Margin Return on Investment helps to understand a company’s ability to turn inventory into cash above the cost of the inventory. It assists buyers and retailer 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.
GMROI is calculated as the ratio of gross margin to the average inventory cost where gross margin is calculated as the difference between net sale
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