What does GMROI measure?

GMROI, or Gross Margin Return on Investment, is a financial metric that specifically measures the efficiency of a retailer's inventory in generating profits. It calculates the gross margin dollars earned for every dollar spent on inventory, providing insight into how well a business is capitalizing on its inventory investments.

This measure is crucial for retailers as it reflects both the profitability and the management of inventory — two key aspects of successful retail operations. A higher GMROI indicates that the retailer is efficiently turning its inventory into profit, which is essential for maintaining financial health and supporting business growth. By focusing on gross margin dollars, GMROI also emphasizes the profitability of sales, distinguishing it from other metrics that may not account for the costs associated with generating those sales.

Other choices do not effectively reflect the core function of GMROI. The measure directly relates to inventory investment and the profitability of that investment, making the second option the most accurate.