What financial measure indicates a company's immediate solvency?

The current ratio is a crucial financial measure that indicates a company's immediate solvency. It is calculated by dividing current assets by current liabilities and provides insight into the company's ability to cover its short-term obligations with its short-term assets. A current ratio greater than one suggests that the organization has more current assets than current liabilities, thus indicating a favorable liquidity position. This is particularly important for assessing whether the company can meet its obligations as they come due, which is essential for maintaining operational stability and avoiding defaults.

The other measures, while important, focus on different aspects of financial health. The debt-to-equity ratio assesses financial leverage and long-term solvency rather than immediate financial ability. Return on equity evaluates a company's profitability relative to shareholder equity, and the gross margin ratio assesses the efficiency of production and pricing; both do not directly indicate immediate solvency. Therefore, the current ratio stands out as the measure that provides the clearest picture of a company's short-term financial health.