Which financial metric reflects a company’s liquidity more accurately over a short term?

The cash ratio is the financial metric that most accurately reflects a company's liquidity in the short term because it measures the proportion of a company's total cash and cash equivalents to its current liabilities. This ratio focuses specifically on the most liquid assets—cash and cash equivalents—allowing investors and analysts to assess a company's immediate ability to settle its short-term obligations.

By focusing exclusively on cash resources, the cash ratio provides a more conservative view of liquidity than other ratios, such as the current or quick ratio, which includes other current assets that may not be as easily converted to cash within a short time frame. This makes the cash ratio particularly useful for understanding a company’s short-term financial health under immediate stress conditions or scenarios where cash outflow is expected.

The current ratio may also reflect a company's liquidity, but it includes inventory and receivables, which may not be as readily convertible to cash. The debt ratio measures overall leverage rather than liquidity, and return on equity focuses on profitability relative to shareholder equity, making them less relevant for assessing short-term liquidity.