What financial metric can indicate a company’s liquidity?

The current ratio is a key financial metric that indicates a company's liquidity, which refers to its ability to meet short-term obligations. It is calculated by dividing current assets by current liabilities. A higher current ratio suggests that a company has more than enough assets to cover its debts in the short term, indicating financial health and liquidity. This measure is particularly important for assessing the risk associated with a company’s ability to cover its short-term liabilities.

Other metrics listed, such as net profit margin, debt to equity ratio, and return on investment, while useful in evaluating different aspects of financial performance, do not primarily measure liquidity. The net profit margin focuses on profitability in relation to revenue, the debt to equity ratio assesses the relative proportion of debt and equity financing, and return on investment measures profitability relative to the capital invested. Therefore, these metrics do not provide insight into a company's immediate financial health in terms of liquidity like the current ratio does.