Which of the following is a liquidity risk ratio?

• A. Current ratio
• B. Debt to equity ratio
• C. Price to earnings ratio
• D. Earnings per share

Answer: (A)

Liquidity risk is about a company's ability to meet its short-term obligations with its readily available assets. The current ratio directly measures this by comparing current assets to current liabilities, showing how well short-term obligations can be covered. A value above 1 suggests the firm has more short-term assets than liabilities, indicating better liquidity. The other ratios relate to different aspects: debt-to-equity looks at leverage and long-term solvency, price-to-earnings ties to market valuation, and earnings per share reflects profitability per share. So, the current ratio is the best indicator of liquidity risk among the options.