What does the current ratio measure?

The current ratio is a financial metric that specifically assesses a company's ability to satisfy its short-term liabilities using its short-term assets. This ratio is calculated by dividing current assets by current liabilities and is a key indicator of a company's liquidity position. A higher current ratio indicates that a company has more than enough short-term assets to cover its short-term obligations, which is a positive sign of financial health.

This measure is particularly important for creditors and investors who want to understand the company's ability to manage its immediate financial obligations. In a scenario where a company has a current ratio greater than 1, it means that the total value of its short-term assets exceeds its short-term liabilities, which suggests a comfortable buffer against potential cash flow disruptions.

In contrast, options regarding long-term liabilities, total debt relative to equity, or operational efficiency do not pertain to the current ratio’s focus on short-term financial obligations. The current ratio is exclusively tied to the relationship between current assets and current liabilities, making option B the correct answer.