What does liquidity measure?

Liquidity measures a company's ability to meet its short-term obligations, which is crucial for its financial health and operational stability. It assesses whether a company has enough liquid assets, such as cash or assets that can quickly be converted to cash, to cover debts and liabilities that are due in the near term.

High liquidity means a company can easily pay off its current liabilities, which is important for maintaining operations and avoiding financial distress. Financial ratios like the current ratio and quick ratio are commonly used to evaluate liquidity, providing insights to stakeholders about the company’s short-term financial position.

Other answer choices relate to different financial aspects: long-term profitability focuses on a company's ability to generate profit over an extended period, asset depreciation rate pertains to how a company manages and accounts for the reduction in value of its assets, and revenue growth measures how much a company’s sales revenue is increasing over time. While these factors are important in assessing a company’s overall performance, they do not specifically address liquidity.