Which of the following calculations is used to assess a company's liquidity?

The Current Ratio is a financial metric specifically designed to assess a company's liquidity, which refers to its ability to meet short-term obligations. This ratio is calculated by dividing a company’s current assets by its current liabilities. A higher Current Ratio indicates that the company has more assets readily available to cover its liabilities, suggesting a stronger liquidity position.

Liquidity is critical for a business, as it ensures that the company can pay off its short-term debts and continue operations without financial stress. A Current Ratio of less than 1 may signify potential liquidity problems, while a ratio above 1 generally indicates that a company can comfortably pay its bills.

In contrast, other metrics mentioned serve different purposes. Return on Investment focuses on profitability rather than liquidity, measuring the efficiency of an investment. The Gross Margin Ratio assesses the profitability of a company relative to its sales. The Debt to Equity Ratio evaluates a company’s financial leverage, not its ability to meet short-term liabilities. Each of these metrics provides valuable insights, but the Current Ratio is the specific calculation tailored for analyzing liquidity.