Final answer:
The debt-to-equity ratio and the current ratio are used to measure a company's ability to pay current obligations.
Step-by-step explanation:
The debt-to-equity ratio and the current ratio are used to measure a company's ability to pay current obligations.
The debt-to-equity ratio measures the financial leverage of a company by comparing its total debt to its equity. It indicates the proportion of a company's financing that comes from debt and shows how much risk the company has taken on.
The current ratio is a liquidity ratio that measures a company's ability to meet short-term obligations with its current assets. It is calculated by dividing the company's current assets by its current liabilities.
The current ratio and the quick ratio are used to measure of a company indicating the ability to pay current obligations. These financial metrics, respectively known as the liquidity ratio and the acid-test ratio, are essential in evaluating a company's short-term financial health. The current ratio considers a company's total current assets relative to its current liabilities, showing if the firm has enough resources to cover its debts over the next year. On the other hand, the quick ratio is more conservative as it excludes inventory from current assets, providing insight into a company's ability to meet immediate obligations without relying on the sale of inventory.