What is the financial term for the ability of a firm to pay its short-term debts?

The financial term that describes a firm's ability to pay its short-term debts is liquidity. Liquidity refers to the availability of liquid assets to a company, which includes cash and other assets that can be quickly converted into cash without significant loss of value. It is crucial for a business to maintain sufficient liquidity to ensure it can meet its obligations, such as paying suppliers, employees, and other short-term liabilities.

When assessing a firm's liquidity, important metrics like the current ratio and quick ratio are often analyzed. These measures compare current assets to current liabilities, providing insight into whether the firm can cover its short-term commitments.

Other terms like solvency relate to a firm's overall ability to meet its long-term debts, profitability assesses how well a company can generate income relative to expenses, and capitalization refers to the structure of a firm’s long-term funding sources. Therefore, liquidity is specifically focused on short-term financial health, making it the correct choice.