Which financial ratio measures a firm's ability to meet short-term obligations?

The correct answer is the current ratio, which is a widely used financial metric that assesses a firm's ability to cover its short-term obligations with its current assets. This ratio is calculated by dividing a company's current assets by its current liabilities. A higher current ratio indicates a greater capacity to pay off short-term debts, which is crucial for understanding the company's financial health and liquidity position.

The current ratio provides a clear picture of a company's operational efficiency in managing its cash flow and meeting financial obligations that are due in the short term, typically within one year. This is particularly important for investors and creditors as they evaluate the risk associated with lending to or investing in the company.

In contrast, while the quick ratio also measures liquidity, it excludes inventory from current assets, offering a more stringent view. The debt ratio measures total debt relative to total assets, providing insight into financial leverage rather than short-term solvency. Profitability ratios focus on a company’s ability to generate profit, not on its liquidity or short-term financial obligations. Hence, the current ratio is the most appropriate metric for assessing a firm's immediate financial stability.