IGNOU BRL 7 2026 2027 - Explain the process of calculating GMROI.

Question

Explain the process of calculating GMROI.

07 Aug 2026

Answer :

Word Count : 515

The Gross Margin Return on Investment (GMROI) is an important performance measure used in store operations and retail management. It helps a retailer understand how much gross profit is earned from the money invested in inventory. In simple terms, GMROI shows whether the inventory investment is generating a satisfactory return. The calculation of GMROI involves three main figures: gross margin, average inventory cost, and inventory turnover. The basic formula is: GMROI = Gross Margin ÷ Average Inventory Cost Gross margin is the difference between net sales and the cost of goods sold. It can be calculated as: Gross Margin = Net Sales − Cost of Goods Sold Average inventory is generally calculated by taking the average of the beginning inventory and ending inventory: Average Inventory = (Beginning Inventory + Ending Inventory) ÷ 2 However, for GMROI, inventory should normally be considered at cost rather than at retail selling price.

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