Because the current ratio includes inventory (which often cannot be quickly converted to cash), many analysts prefer to use the quick or acid test ratio to evaluate liquidity. This ratio is simply the ratio of current assets other than inventory to current liabilities. Another way to evaluate solvency is simply to compare current holdings in cash and near cash (marketable securities) and the company's ability to generate cash as measured by cash flows from operating activities to current liabilities. The ratio of cash + marketable securities + cash flows from operating activities to current liabilities is called the cash flow liquidity ratio. Activity Ratios Activity ratios help lenders and other creditors and equity investors evaluate an entity's ability to manage its assets. The first key activity ratio is the average collection period. This is the ratio of accounts receivable to daily sales. By comparing this ratio across time and to industry averages, analysts can gauge if the company is efficient at collecting its money and if it has changed its credit policies -- particularly if it has loosened its credit policies as evidenced by a longer collection