Which of the following financial metrics is most crucial for assessing the capacity utilization of a manufacturing company?

Assessing the capacity utilization of a manufacturing company primarily involves understanding how effectively it is using its production capabilities. The defect rate percentage is a vital metric in this context because it indicates the quality of the products being produced and how many of those products meet the required standards. A high defect rate can suggest that production processes may not be efficient, which in turn could imply that the company is not utilizing its capacity effectively.

When capacity is underutilized, it typically results in higher costs per unit, as fixed costs are spread over fewer units of output. Conversely, a lower defect rate generally signals that the production process is efficient and that the company is operating closer to its full capacity, which is crucial for maintaining profitability in a manufacturing setting. Hence, the defect rate percentage directly reflects the operational performance and effectiveness of the capacity utilization in a manufacturing company.

In contrast, market price of shares, debt-to-equity ratio, and short-term liquidity metrics, while important for overall financial health and stability, do not provide direct insights into the efficiency of manufacturing capacity or production processes.