Which of the following is a key indicator of a firm’s liquidity?

A key indicator of a firm’s liquidity is the current ratio. This financial metric provides insight into the company’s ability to meet its short-term obligations using its current assets. The current ratio is calculated by dividing current assets by current liabilities. A ratio greater than one typically indicates that the company has more current assets than current liabilities, suggesting good liquidity and a lower risk of financial distress in meeting its short-term debts.

The current ratio is particularly important for stakeholders, such as investors and creditors, as it reflects the company's short-term financial health. It answers whether a business can cover its short-term liabilities when they come due. In contrast, net profit margin, return on assets, and debt ratio measure different aspects of a business's performance or financial structure but do not specifically reflect liquidity levels. The net profit margin focuses on profitability relative to sales, return on assets assesses how efficiently assets generate profit, and the debt ratio indicates the proportion of a company's assets financed by debt, which is more related to leverage than liquidity.