Registered Dietitian Practice Test 2025 – 400 Free Practice Questions to Pass the Exam

The ratio that indicates an organization's ability to meet current obligations is liquidity. Liquidity ratios assess the short-term financial health of an organization by evaluating its capacity to convert assets into cash quickly to pay off liabilities. A key example of a liquidity ratio is the current ratio, which compares current assets to current liabilities. A higher liquidity ratio signifies that the organization has sufficient short-term assets to cover its short-term obligations, thereby indicating a lower risk of financial distress.

In contrast, operating ratios assess the efficiency of a company's core business operations, activity ratios measure how effectively a company utilizes its assets, and profitability ratios evaluate the organization's ability to generate profit relative to its revenue, assets, or equity. While all these ratios provide valuable insights into different aspects of financial performance, liquidity is specifically focused on an organization's capability to fulfill its short-term financial commitments.