gmroi method management strategies ppt merchandise

Merchandise management performance gmroi methods

1. MERCHANDISE MANAGEMENT PERFORMANCE GMROI METHOD Shruthi Shree B Varlakshmi P

2. GMROI A financial ratio that assesses a buyer’s contribution to ROA is gross margin return on inventory investment It measures how many gross margin dollars are earned on every dollar of inventory investment made by the buyer. GMROI combines gross margin percentage and the sales-to-stock ratio, which is related to inventory turnover.

3. GMROI = Gross margin percentage x Sales-to-stock ratio =Gross margin x Net sales Net sales Average inventory at cost =Gross margin Average inventory at cost

4. To convert the sales-to-stock ratio to inventory turnover , simply multiply the sales-to-stock ratio by (1 – gross margin percentage). Thus, if the sales-to-stock ratio is 9.0 and the gross margin percentage is .40, the inventory turnover for the category is 5.4: Inventory turnover = (1 - Gross margin percentage) x Sales-to-stock ratio 5.4 = (1 -0 .4) x 9.0

5. Question 1 DATA: Net sales = ₹500,000; COGS = ₹350,000; Average inventory at cost = ₹75,000. Find: GMROI and interpretation Solution Gross margin = Net sales − COGS = 500,000 − 350,000 = ₹150,000 GMROI = Gross margin / Average inventory = 150,000 ÷ 75,000 =2 → GMROI = 2.0 Interpretation: For every ₹1 invested in inventory, retailer earned ₹2 in gross margin.

6. Question 2 Data: Gross margin % = 30% (0.30); Inventory turnover = 6 times/year Find: GMROI Solution GMROI = Gross margin % × Inventory turnover = 0.30 × 6 = 1.8 Interpretation: ₹1 invested returns ₹1.80 gross margin.

7. categories Category Net Sales (₹) COGS (₹) Opening Inv. (₹) Closing Inv. (₹ Clothing 8,00,000 5,00,000 2,00,000 2,40,000 Footwear 5,00,000 3,50,000 1,50,000 1,70,000 Accessories 3,00,000 2,00,000 80,000 1,20,000 Question 3

8. Calculation Gross Margin (₹): Clothing = 8,00,000 – 5,00,000 = 3,00,000 Footwear = 5,00,000 – 3,50,000 = 1,50,000 Accessories = 3,00,000 – 2,00,000 = 1,00,000 Average Inventory (₹): Clothing = (2,00,000 + 2,40,000)/2 = 2,20,000 Footwear = (1,50,000 + 1,70,000)/2 = 1,60,000 Accessories = (80,000 + 1,20,000)/2 = 1,00,000

9. GMROI Results GMROI = Gross Margin/Average Inventory Clothing: 3,00,000 ÷ 2,20,000 = 1.36 Footwear: 1,50,000 ÷ 1,60,000 = 0.94 Accessories: 1,00,000 ÷ 1,00,000 = 1.00 Interpretation Clothing (1.36): Strong performance, profitable. Accessories (1.00): Break-even point. Footwear (0.94): Weak performance, not generating sufficient returns.

10. ADVANTAGES GMROI helps measure profitability per rupee invested in inventory. Provides a clear basis for merchandise planning and decision making. Supports managers in identifying strong and weak categories. Balances profitability & inventory productivity • Easy comparison across product lines • Supports pricing, promotion & purchasing decisions

11. Limitations of GMROI Ignores operating expenses & net profit. May not reflect customer demand patterns. Different product categories need different benchmarks.

12. Conclusion GMROI is a powerful tool for evaluating merchandise management performance. Balances sales, gross margin, and inventory efficiency. Retailers should use GMROI with other metrics for holistic decision-making.