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Consider the following equations:

  1. (A) Gross Margin Return on Investment = Gross Margin $ / Average Inventory at Cost

    (B) Return on Assets = Net Profit Margin / Total Assets

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    Which of the following statements is most true?

    A.

    Neither ROA nor GMROI are viable metrics for measuring buyer performance, as neither takes into account the important relationship between cost of inventory and pricing.

    B.

    GMROI is a more appropriate metric for measuring retail buyer performance than ROA because ROA includes elements for which buyers do not have control over.

    C.

    GMROI is a better metric for measuring overall company performance because it is narrowly focused on the things that matter most to a retail business – gross margin and cost of inventory.

    D.

    ROA is a better metric for measuring buyer performance because it captures all aspects of managing a retail business, including operating expenses and asssets other than inventory.

 
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