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Ashley Companies

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GMROI
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Ashley & GMROI
What is GMROI?
®

• Gross Margin Return on Investment

Is a simple calculation that tells


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you how much gross margin you


make on every dollar invested in
your inventory

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Ashley & GMROI
Why is GMROI so important?
®

• GMROI is the best indicator of profitability


• It takes both gross margin and turns into
account to provide you with a single
number
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• It’s time tested accuracy makes it both


effective and simple

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Ashley & GMROI
How do you calculate GMROI?
®

What I received
-------------------
What I invested
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Or
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Gross margin $
-----------------
Inventory $

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Ashley & GMROI
®

Example
$600,000 GM
------------------- = $2.00 GMROI
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$300,000 Inv.

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Ashley & GMROI
Brand A Item Brand B Item
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• Cost $120 • Cost $120


• Selling Price $240 • Selling Price $240
• Gross Margin $ $120 • Gross Margin $ $120
• Gross Margin % 50% • Gross Margin % 50%
• Sales per month 6 • Sales per month 6
• GM per month $720 • GM per month $720
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GM per year $8,640 • GM per year $8,640


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A & B would appear equally profitable 6


Ashley & GMROI
Brand A Item Brand B Item
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• Reorder lead days 20 • Reorder lead days 60


• Inventory units to • Inventory units to
cover lead days sales 4 cover lead days sales 12
• GM $ per year $8,640
• GM $ per year $8,640
• Divide by invent. $480
• Divide by invent. $1,440
• GMROI $18.00
• GMROI $ 6.00
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At the SAME sales and gross margin,


the RETURN on A item is 3 times that
of B item!!
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Ashley & GMROI
Increase Cash flow
®

Turn Rate Vs. Owner's Equity in Inventory


Manufacturers' Payment Terms
Week's Month's 120
Turn Rate 15 Days 30 Days 45 Days 60 Days 90 Days
Supply Supply Days

2.0 26.0 6.0 92% 83% 75% 67% 50% 33%


3.0 17.3 4.0 88% 75% 63% 50% 25% 0%
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4.0 13.0 3.0 83% 67% 50% 33% 0%


F

5.0 10.0 2.4 79% 58% 38% 17%


6.0 8.7 2.0 75% 50% 25% 0%
7.0 7.4 1.7 71% 42% 13%
If you turn
8.0 6.5 1.5 67% 33% 0%
9.0 5.8 1.3 63% 25%
your inventory 12 times
10.0 5.2 1.2 58% 17% per year and get 30 day
11.0 4.7 1.1 54% 8% terms, you have NO,
12.0 4.3 1.0 50% 0% NO, NO owner's equity
15.0 3.5 0.8 38%
20.0 2.6 0.6 17%
tied up in Inventory
24.0 2.2 0.5 0%
Source: GERS Retail Systems Institute
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Ashley & GMROI
How GMROI affects on profit
®

• $1.84 GMROI = 2% Profit


• $3.00 GMROI = 8% Profit
• $4.00 GMROI = 12% Profit
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• $5.00 GMROI = 14% Profit

2000 average profit large stores 2%


2000 average profit all store 3%
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THE END

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