Correct Answer:
B. Current ratio
Financial ratios are analytical tools used to evaluate various aspects of a company's financial health. Liquidity ratios specifically measure a company's ability to meet its short-term financial obligations. The Current ratio is the correct answer, calculated as Current Assets divided by Current Liabilities. It indicates the extent to which current assets cover current liabilities, providing a primary measure of short-term solvency.
- The Debt ratio measures a company's total debt relative to its assets, indicating long-term solvency.
- Profit margin assesses profitability by showing how much profit a company makes for every dollar of revenue.
- Return on equity measures the profitability of a company in relation to the equity invested by shareholders.
These other ratios focus on different aspects of financial performance, not short-term liquidity.