Final answer:
The company's ability to pay its short-term debts as they come due is called liquidity.Liquidity refers to the readiness of a company to pay its short-term debts as they come due.
Step-by-step explanation:
The readiness of a company to pay its short-term debts as they come due is referred to as liquidity. Therefore, the correct answer to the student's question is 1) Liquidity. Liquidity is essentially about how quickly and easily assets can be converted into cash or used to purchase goods or services. High liquidity means that a company can readily meet its short-term obligations, reflecting positively on its financial health.
Cash is the most liquid asset a company can have, as it can be immediately used without the need for conversion. Other assets, like those in a savings account, are less liquid because they may require additional steps to access, such as withdrawing from a bank. Companies must manage their liquidity carefully to ensure they can handle upcoming liabilities.