Which of the following is a key indicator of a company's liquidity?

The current ratio is a key indicator of a company's liquidity because it measures the company’s ability to meet its short-term obligations using its short-term assets. The current ratio is calculated by dividing current assets by current liabilities. A higher current ratio indicates that the company has more short-term assets relative to its short-term liabilities, which suggests a stronger liquidity position. This is crucial for assessing a company's financial health, as it shows that the business should be able to cover its immediate debts as they come due.

In contrast, the debt to equity ratio measures the relative proportion of shareholder's equity and debt used to finance a company's assets, which is more focused on capital structure than liquidity. Return on equity signifies how well a company is generating profits from its equity, while profit margin assesses the efficiency of generating profit per dollar of sales. Both these measures provide insight into profitability rather than liquidity.