What do liquidity ratios measure?

Liquidity ratios are key financial metrics that assess a company's ability to meet its short-term obligations or liabilities using its most liquid assets. These ratios indicate how easily a company can convert its assets into cash to pay off current debts, which is crucial for maintaining operational stability. A higher liquidity ratio suggests that a company is better positioned to fulfill its short-term financial commitments, thus reducing the risk of financial distress.

In contrast to the correct option, measuring profitability pertains to how effectively a company generates profit from its operations, while long-term financial viability involves assessments of a company's ability to sustain its operations and pay back long-term debts over time. Market share, on the other hand, reflects a company's relative position in the industry, capturing the percentage of an entire market that the company controls, rather than focusing on its liquidity or short-term financial health.