What does the current ratio measure?

The current ratio is a financial metric that evaluates a company’s ability to cover its short-term liabilities with its short-term assets. It is calculated by dividing current assets by current liabilities. A higher current ratio indicates that the company has more than enough assets to sell or convert into cash to pay off its upcoming debts, reflecting a strong liquidity position. This is crucial for assessing a company's financial health in the short term, as it helps investors and creditors understand how well the company can manage its short-term obligations.

The other choices focus on different aspects of financial analysis; for instance, long-term profitability is assessed through metrics related to earnings and returns over time rather than short-term liquidity. Owner's equity pertains to the net assets owned by shareholders but does not directly address the immediate ability to pay debts. Total assets represent the overall financial resources of the company, which again does not specifically inform about liquidity concerning short-term payments. Thus, the current ratio specifically targets short-term financial health, making the correct answer the one that highlights this ability to pay short-term obligations.