What do I enter for average inventory at cost?

The average value of the stock you held over the period, valued at cost rather than at retail. Average it across the opening balance and every month-end in the period — seven points for a six-month season, thirteen for a year — rather than across the opening and closing balances alone, which skips the build between them. The guide works through why the two diverge on a seasonal build.

My stock figures are at retail. How do I convert them?

Multiply each stock position by your cost complement, which is 1 minus the initial markup on retail. A class running a 60% IMU has a cost complement of 0.40, so 600 of stock at retail is 240 at cost. Use the complement the class actually carries, not a company average — the IMU calculator returns it from a cost and a retail price.

Does this calculator annualize the result?

No. It returns GMROI for whatever period the figures you enter describe, so a six-month season in gives a six-month GMROI out. To annualize, enter twelve months of gross margin over a thirteen-point average of inventory at cost. Do not multiply a season or a quarter by the number of periods in a year — that assumes the rest of the year earns the same margin on the same inventory.

Where should markdowns, shrink and freight go?

Markdowns are already inside net sales, so enter net sales after them rather than deducting them again. Shrink and non-resaleable returns belong in cost of goods sold. Inbound freight and duty depend on your own policy: capitalised, they sit in landed cost and therefore in both inputs; expensed, they sit below the gross margin line. Whichever you choose, keep it consistent between periods or the trend moves without anything being traded differently.

// Tools

GMROI calculator

GMROI (gross margin return on inventory) is how many gross-margin dollars you earn per dollar of inventory — gross margin ($) ÷ average inventory at cost. A result above 1.0× means margin exceeds the inventory investment.

Looking for the method rather than the number — where markdowns, shrink and freight sit, how many points go into the average, how to annualize, and how to set your own hurdle?

Read the Guide →

Net sales ($)

Cost of goods sold ($)

Average inventory (at cost, $)

Enter net sales, COGS, and average inventory to see GMROI.

// How it works

01
Enter net sales and COGS
Net sales and cost of goods sold for the period.
02
Enter average inventory at cost
Average inventory value at cost over the same period.
03
Read GMROI
GMROI = gross margin ($) ÷ average inventory at cost. Above 1.0× means margin exceeds the inventory investment.

// Reading the result · where spreadsheets break

Read GMROI against plan and against your other categories, not against a single benchmark. Below 1.0× the category is not returning its margin on the inventory it ties up; a high figure can flag underbuying as easily as efficiency. The useful question is whether GMROI is trending toward plan as the season trades. For the full method — where markdowns and shrink sit, month-end versus two-point average inventory, and annualizing correctly — read how to calculate GMROI.

In a spreadsheet, GMROI is a month-end snapshot — margin lives in one file, inventory at cost in another, and the two are reconciled by hand after decisions are already made. By the time a weak category surfaces, the lever left is markdown. The value is in seeing it where buying decisions happen, while there is still time to act.

// FAQ

Frequently asked questions

What do I enter for average inventory at cost?: The average value of the stock you held over the period, valued at cost rather than at retail. Average it across the opening balance and every month-end in the period — seven points for a six-month season, thirteen for a year — rather than across the opening and closing balances alone, which skips the build between them. The guide works through why the two diverge on a seasonal build.
My stock figures are at retail. How do I convert them?: Multiply each stock position by your cost complement, which is 1 minus the initial markup on retail. A class running a 60% IMU has a cost complement of 0.40, so 600 of stock at retail is 240 at cost. Use the complement the class actually carries, not a company average — the IMU calculator returns it from a cost and a retail price.
Does this calculator annualize the result?: No. It returns GMROI for whatever period the figures you enter describe, so a six-month season in gives a six-month GMROI out. To annualize, enter twelve months of gross margin over a thirteen-point average of inventory at cost. Do not multiply a season or a quarter by the number of periods in a year — that assumes the rest of the year earns the same margin on the same inventory.
Where should markdowns, shrink and freight go?: Markdowns are already inside net sales, so enter net sales after them rather than deducting them again. Shrink and non-resaleable returns belong in cost of goods sold. Inbound freight and duty depend on your own policy: capitalised, they sit in landed cost and therefore in both inputs; expensed, they sit below the gross margin line. Whichever you choose, keep it consistent between periods or the trend moves without anything being traded differently.

// Related resources

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