What financial metric evaluates profitability based on the company’s assets?

The metric that evaluates profitability based on a company’s assets is the Gross Margin Return on Investment (GMROI). This measure is specifically designed to assess the profitability of inventory investments by evaluating how much gross profit is generated for every dollar invested in inventory.

GMROI is particularly valuable for retailers and companies that rely heavily on inventory, as it provides insight into how effectively a company is using its assets (in this case, inventory) to generate profits. A higher GMROI indicates that a company is making effective use of its inventory to achieve greater profitability.

Other metrics listed, while related to different aspects of profitability, do not focus directly on assets in the same way GMROI does. For example, Return on Equity measures profitability in relation to shareholder equity, not assets. Profit Margin assesses how much of each dollar of sales remains after all expenses, which is important but doesn’t focus specifically on the efficiency of asset utilization. The Asset Turnover Ratio does measure how effectively a company utilizes its assets to generate sales but doesn’t provide a direct evaluation of profitability derived from those assets.