Financial Glossary

A . B . C . D . E . F . G . H . I . J . K . L . M . N . O . P . Q . R . S . T . U . V . W . X . Y . Z

L ( 50 DEFINITIONS )

Land improvements
Land improvements are assets that increase the usefulness of land but that have a limited useful life and are subject to amortization. top

Large corporations tax (Part I.3 tax)
A large corporations tax is charged on corporations with taxable capital in excess of 10 million. It effectively and systematically reduces the SBD when taxable capital reaches 15 million. top

Last-in first-out (LIFO)
Last-in first-out (LIFO) is a method of inventory costing that assigns the most recent cost value of purchases to the first unit sold. top

Lead time
Lead time is the interval between the time that an order is placed and the time that the order is finally received from the supplier. top

Learning curve effect
The learning curve effect is an increase in proficiency that causes an increase in labour efficiency. top

Lease
A lease is a contract under which the owner of property (the lessor) grants the right to use the property to another party (the lessee). top

Lease term
The lease term is the fixed, non-cancellable period of a lease plus all periods covered by bargain renewal options. It includes all periods for which failure to renew would result in a penalty sufficiently large that renewal appears reasonably assured. The lease term also includes all periods covered by ordinary renewal options during which the lessee has undertaken to guarantee the lessor's debt related to the leased property. It includes all periods covered by ordinary renewal options preceding the date on which a bargain purchase option becomes exercisable and all periods representing renewals or extensions of a lease at the lessor's option. top

Leasehold
Leasehold is the rights granted to a lessee by the lessor under the terms of a lease contract. top

Leasing
Leasing is a form of financing that is similar to debt and is used to fund the acquisition of specific assets. Unlike debt, however, leases are contracts in which the lessor retains title to the asset but allows the lessee to use it in return for periodic lease payments. top

Least-squares regression method
The least-squares regression method is a method of separating a mixed cost into its fixed and variable elements by fitting a regression line that minimizes the sum of the squared errors. top

Ledger
A ledger is the collection of all accounts used by a business. top

Legal capital
Legal capital is the share capital of the company as recorded in its equity accounts. Dividends may not be paid from share capital without permission from creditors. top

Legal responsibility
Legal responsibility means to exercise reasonable care and competence in what CGAs do in their professional duties. There is no room for negligence. top

Lending contracts
Lending contracts are contracts between the firm and its lenders, be they bondholders or banks, etc. top

Lessee
The lessee in a lease is the party renting the asset. top

Lessor
The lessor in a lease is the party renting out the asset. top

Level benefit method
The level benefit method is a method of calculating employers' contributions for defined benefit plans. The funding is based on the projected total years of service to date and on the projected estimated final salary. This amount is then allocated evenly over the years of service. top

Leverage
Leverage is the increase in volatility of financial results (earnings per share) for a given variation in sales. Leverage is caused by fixed costs. Fixed operating costs result in increased fluctuations of operating income and create operating leverage. Fixed financing costs (for example, interest on debt) create additional variability in after-tax earnings per share and result in financial leverage. top

Leverage ratios
Leverage ratios are ratios measuring the extent to which a company uses fixed term obligations to finance its assets. top

Leveraged lease
A leveraged lease is a lease whereby the lessor arranges for a third party to provide the bulk of the financing for a lease arrangement and also arranges for the lessee's payments to coincide with the debt service payments to the third party. In a leveraged recourse lease, the third party may seek compensation from the lessor if the lessee fails to make payments. In a leveraged non-recourse lease, the third party financier cannot seek repayment from the lessor if the lessee defaults, restitution is available only from the lessee. top

Liabilities
Liabilities are obligations of an entity arising from past transactions or events, the settlement of which may result in the transfer or use of assets, provision of services or other yielding of economic benefits in the future. top

Liability method of recording income taxes
The liability method of recording income taxes records the future tax impact of temporary differences by using the tax rate that will be in effect in the year of reversal. The future tax impact is recorded on the balance sheet as a liability and is updated as the tax rates change. top

Lien
A lien is a claim by a creditor on the assets of a company as security on a loan or debt. The party placing the lien has first claim on assets in the event of default. top

Life-cycle costing
Life-cycle costing looks at the profitability of a product line over its entire life. Full life-cycle costing includes research, development, and engineering cycle costing; manufacturing cycle; costing; and sale, service, and disposal cycle costing. top

Likely misstatement
The likely misstatement is the projected amount of misstatement in a population based on sample evidence. top

Limited liability
Limited liability is the provision that limits shareholder losses to the amount invested in the shares of an incorporated business. top

Limited partners
Limited partners are partners who have no personal liability for debts of the limited partnership beyond the amount invested in the partnership. top

Limited partnership
A limited partnership is a partnership in which one or several partners enjoy limited liability. In such a case there must be at least one partner with unlimited liability. top

Line
A line position is a position within a company that is directly related to the achievement of the organization's basic objectives. top

Line of credit
A line of credit is an arrangement with a financial institution that enables a firm to borrow up to a stipulated amount as the need arises. Interest is only paid on actual balances outstanding. This form of borrowing is often used to finance seasonal needs. top

Liquid asset
A liquid asset is an asset such as cash that is easily converted into other types of assets or used to buy services or pay liabilities. top

Liquidating dividends
Liquidating dividends are asset distributions in excess of a credit balance in retained earnings. It is considered a return of the original investment. top

Liquidity
Liquidity, in the context of a firm, is the ability of the firm to meet its financial obligations as they become due. Liquidity is enhanced when a firm has a high proportion of cash, liquid assets, or unused borrowing capacity relative to the level of its current liabilities. In the context of an asset, liquidity refers to the ability to convert the asset into cash on short notice and at fair value. top

Liquidity ratios
Liquidity ratios are designed to test a company's ability to meet its short-term financial obligations. top

Liquidity traders
Liquidity traders are also called -noise traders.- These are investors that are buying or selling securities for a variety of unpredictable reasons rather than reasons based on informed decision making. Examples of this type of buying or selling would be: deciding to retire early, needing the money suddenly, or getting a -hot tip.- top

List price
List price is the nominal price of an item before any trade discount is deducted. top

Listed personal property
Listed personal property of a taxpayer means the taxpayer's personal-use property that is all or any portion of, or any interest in or right to, any print, etching, drawing, painting, sculpture, or other similar work of art, jewellery, rare folio, rare manuscript, or rare book, stamp, or coin. top

Litigated
Litigated is the settlement of a controversy by a judge in the civil justice system. top

Litigation support
Litigation support is consulting in the capacity of helping lawyers document cases and determine damages. top

Local linear approximations (LLAs)
Local linear approximations (LLAs) are used within a relevant range. Within this range accountants assume that costs will behave in a linear fashion, even though the cost behaviour is non-linear in most cases. Basically, what this means is that accountants use LLAs to estimate true marginal costs. top

Local searches
Local searches are possible, that is, it is possible to pre-screen decisions. Pre-screening requires that the possible number of alternative actions be reduced to a limited set. top

Logical unit
A logical unit is an ordinary accounting subsidiary unit that contains the dollar unit selected in a dollar-unit sample. top

Long term
Long term is the period of time over which productive capacity can be changed and need not be considered a constraint. top

Long-term investments
Long-term investments are all investments in debt or equity securities that are not classified as short-term. top

Long-term liability
A long-term liability is a liability due or payable beyond the next operating cycle or fiscal year. top

Loss carryback
A loss carryback occurs when a tax loss is carried back against taxable income of (up to three) prior years and a refund of previous taxes paid is triggered. top

Loss carryforward
A loss carryforward occurs when a tax loss is carried forward to be applied against taxable income of (up to seven) subsequent years after a year in which a taxable loss is incurred. top

Low earnings quality
Low earnings quality is a weak link between the current financial statements and the future firm performance. top

Lower of cost or market (LCM)
Lower of cost or market (LCM) is the recording of an asset at market value (writing it down to market value) if market value is less than cost. It is required to avoid overstating assets. top

Lump-sum purchase (basket or group)
A lump-sum purchase is when several assets are purchased together for a single lump-sum price. top