Which financial metric indicates a company's short-term liquidity?

The current ratio is an essential financial metric that provides insight into a company's short-term liquidity situation. It is calculated by dividing current assets by current liabilities. This ratio helps assess whether a company has enough assets that can quickly be converted into cash to meet its short-term obligations. A current ratio greater than one indicates that a company has more current assets than current liabilities, suggesting a solid liquidity position.

Short-term liquidity is crucial for a company to cover immediate expenses and commitments, making the current ratio a vital indicator in financial analysis. By monitoring this ratio, stakeholders, including management, investors, and creditors, gain a clear picture of the company's ability to sustain operations without facing financial difficulty due to cash flow issues.

Other metrics, such as the debt-to-equity ratio, return on investment, and gross profit margin, focus on different aspects of the company's financial health, like overall leverage, profitability, and operational efficiency, rather than specifically addressing short-term liquidity.