Which term describes the ability of a business to pay short-term liabilities?

Liquidity refers specifically to a business's ability to meet its short-term financial obligations, such as paying off debts and other liabilities that are due within one year. It measures how quickly a company can convert its assets into cash to ensure it can maintain operations and avoid defaulting on its debts.

High liquidity means that the business has sufficient cash or easily liquidated assets to cover its short-term liabilities, such as accounts payable and other immediate obligations. This is crucial for operational stability and can influence a company’s creditworthiness and borrowing capacity.

On the other hand, efficiency relates to how well a company uses its resources to produce goods or services and does not specifically address short-term financial health. Profitability focuses on the ability to generate income relative to expenses and does not necessarily indicate a company’s capacity to meet immediate liabilities. Solvency refers to a company's ability to meet its long-term obligations, which is a different aspect of financial health altogether.