Final answer:
Liquidity ratios are the best way to measure a company's short-term ability to pay its obligations and cater to unexpected cash needs, with the current ratio and quick ratio being the most common.
Step-by-step explanation:
The best way to measure a company's short-term ability to pay its maturing obligations and to meet unexpected needs for cash is by using liquidity ratios. These ratios provide information about a firm's capacity to cover its short-term debt with its current assets, giving insight into the company's financial health and operational efficiency. The two most common liquidity ratios are the current ratio and the quick ratio, which differ in how they account for the company's inventory. The current ratio divides current assets by current liabilities, while the quick ratio, or acid-test, excludes inventory from current assets before dividing by current liabilities. Both ratios are essential for understanding how well-equipped a company is to handle short-term financial obligations.