What does the current ratio measure?

The current ratio is a key financial metric used to evaluate a company's liquidity, specifically its ability to pay off short-term liabilities with its short-term assets. It is calculated by dividing current assets by current liabilities. A ratio greater than 1 typically indicates that a company has more current assets than current liabilities, suggesting a strong liquidity position and an ability to cover short-term debts as they come due.

This is crucial for creditors and investors, as it reflects the financial health and operational efficiency of the company. In contrast, the other options involve different financial assessments: one relates to revenue generation, another focuses on long-term debts, and the last considers overall profitability, which are not directly assessed by the current ratio. Thus, the current ratio specifically addresses the short-term financial obligations of a business, making the chosen answer the most appropriate.