Which statement about liquidity ratios is correct?

The statement regarding liquidity ratios focusing on a company's ability to pay off current obligations is correct because liquidity ratios are specifically designed to assess a business's capacity to meet its short-term liabilities. These ratios provide insight into a company's financial health in terms of immediate cash flow and short-term asset management.

Liquidity ratios, such as the current ratio and quick ratio, utilize current assets in relation to current liabilities to evaluate whether a business has sufficient resources to cover its debts as they come due. A higher liquidity ratio generally indicates a more financially stable company that can readily accommodate its short-term financial obligations, while a lower ratio may indicate potential financial distress.

In contrast, other options either relate to different aspects of financial health, such as long-term solvency or specific equity calculations, or incorrectly state what liquidity ratios consider in their calculations, such as ignoring cash in hand and cash equivalents, which are vital in assessing liquidity.