What are liquidity ratios primarily used to assess?

Liquidity ratios are financial metrics used primarily to evaluate a company's ability to meet its short-term obligations, such as current liabilities, with its short-term assets. These ratios provide insight into the financial health of a business, particularly its capacity to handle its immediate financial responsibilities. The most common liquidity ratios include the current ratio and the quick ratio, both of which help assess how well a company can convert its assets into cash or near-cash forms to cover short-term debts.

When a company has a high liquidity ratio, it indicates a strong position to pay off short-term liabilities, which is crucial for maintaining operational stability and investor confidence. Conversely, low liquidity ratios might suggest potential difficulties in meeting short-term obligations, which could lead to solvency issues or even bankruptcy if not addressed.

In contrast, other ratio categories mentioned in the options focus on different aspects of financial analysis, such as long-term profitability, stock performance, or the levels of debt, which do not directly relate to liquidity management. Therefore, the primary use of liquidity ratios clearly aligns with assessing a company's ability to pay short-term obligations.