Inventory Performance, Cost and Value Measures

Gross Margin Return on Inventory (GMROI)

If you were a bank, which company would you invest in?

Company A

Company B

Sales$ 1,000,000.00 $

1,000,000.00 200,000.00 800,000.00

Profit $

200,000.00 $ 400,000.00 $

Average Inventory Value $

Return on Inventory

50%

25%

GMROI(i) = [{USP(i) – UIV(i)} x AD(i)] / AIV(i) USP(i) = Unit Selling Price of Item i UIV(i) = Unit Inventory Value of Item i AD(i) = Annual Demand of Item i AIV(i) = Average Inventory Value of Item i

Return on Inventory = Margin / Average Inventory Value

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