A profitability metric called gross margin return on investment is used in inventory management to evaluate how much profit a company makes for each dollar spent on inventory. It is computed by dividing the average inventory cost by the gross profit. Retailers and supply chain managers can assess the efficacy of their inventory choices with the aid of GMROI. The business is making more money per unit of inventory investment when inventory assets are used more efficiently, as indicated by a higher GMROI. It is especially helpful for determining which products or categories are not performing well and for directing decisions about stocking and merchandising.
