when you sell inventory the balance is moved to the cost of sales which is an expense account the goal as a business owner is to maximize the amount of inventory sold while minimizing the inventory that is kept on hand for example if the cost of sales for the month totals 400 000 and you carry 100 000 in inventory your turnover rate is four which indicates that you sold your entire inventory four times that month 
inventory turnover also known as sales turnover helps investors determine the level of risk that they will face if providing operating capital to a company retailers tend to have the highest inventory turnover the speed can be a factor of the industry in general or indicate a well run company the reciprocal of the inventory turnover ratio 1 inventory turnover is the days sales of inventory dsi this tells you how many days it takes on average to completely sell and replace a company s inventory 