Which ratio helps determine the liquidity position of a company?

The current ratio is a crucial financial metric used to assess a company's liquidity position. It compares a company's current assets to its current liabilities, providing insight into its ability to cover short-term obligations with assets that are readily convertible to cash. A current ratio greater than 1 indicates that the company has more current assets than liabilities, suggesting a good liquidity position and ability to meet its short-term debt. Conversely, a ratio less than 1 may imply potential liquidity issues, indicating that the company might struggle to pay off its short-term obligations.

The other ratios listed serve different purposes: the debt to equity ratio assesses financial leverage and risk based on the company’s capital structure; return on equity measures profitability relative to shareholder equity; and operating margin evaluates operational efficiency by examining how much profit a company makes on its revenues after covering operating expenses. Each of these ratios provides valuable information but does not specifically measure liquidity like the current ratio.