Gross Margin Return on Investment (GMROI)

Gross margin return on investment (GMROI) is a profitability ratio that measures the amount of gross profit a company generates from each dollar of sales. It is calculated by dividing a company's gross profit by its net sales.

GMROI is a useful metric for comparing the profitability of different businesses or products within a business. It can also be used to track a company's profitability over time.

A high GMROI indicates that a company is generating a lot of profit from its sales. This can be a sign of a healthy business. However, it is important to note that GMROI does not take into account a company's operating expenses or other costs. Therefore, it is not a complete measure of a company's profitability.

GMROI is calculated using the following formula:

GMROI = Gross Profit / Net Sales

Where:

• Gross Profit is the difference between a company's sales and its cost of goods sold.
• Net Sales is a company's total sales revenue minus any returns or allowances.

For example, if a company has $100 in sales and $50 in cost of goods sold, its gross profit would be $50. If its net sales are $90, its GMROI would be 55.6% ($50 / $90).

GMROI can be used to compare the profitability of different businesses or products within a business. It can also be used to track a company's profitability over time. However, it is important to note that GMROI does not take into account a company's operating expenses or other costs. Therefore, it is not a complete measure of a company's profitability.

In addition to GMROI, there are other profitability ratios that can be used to evaluate a company's financial health. These include return on investment (ROI), net profit margin, and operating profit margin.