Which financial ratio evaluates a firm’s capacity to pay off short-term obligations using its short-term assets?

Explanation

• The Current Ratio ($ ext{Current Assets} / ext{Current Liabilities}$) measures short-term liquidity and financial solvency.
• A standard benchmark ratio of $2.0$ generally indicates sufficient liquidity buffer to satisfy short-term claims.
• The ‘Quick Ratio’ (Acid-Test) is stricter as it excludes inventory from current assets: $( ext{Current Assets} – ext{Inventory}) / ext{Current Liabilities}$.