What do liquidity ratios measure?

Liquidity ratios are used to evaluate a company's ability to meet its short-term financial obligations. This is crucial for assessing the financial health of a business, as it indicates how readily available assets are to cover current liabilities. When liquidity ratios are analyzed, they reflect the organization's capacity to convert its assets into cash quickly without significant losses, ensuring that it can sustain operations and meet obligations as they come due.

In the context of the other choices, profitability ratios would focus on how much profit a company generates, which is different from liquidity. The level of debt ratios would assess the extent of a company's leverage or how much debt it possesses relative to its assets or equity. Effectiveness of resource utilization would look at how well a company uses its resources to generate revenue, which is not directly tied to its ability to pay short-term debts. Thus, the correct answer aligns with the fundamental purpose of liquidity ratios in financial analysis.