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  Glossary - J-K-L  

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Glossary of Accounting, Financial & Investing Information - J, K & L

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Large cap

Large cap (large capitalization) refers to corporations which have a total market value (shares outstanding x current market price) of over $10 billion for US companies.

Leading indicator

Leading indicators are statistics which are used to forecast how the economy will be performing in the future.  Examples are unemployment rates, commodity prices, housing starts, inflation, bankruptcies, etc.

Lease

A contract for the rental of property.  The owner of the property is the lessor, and the person or company renting the property is the lessee.

If you are leasing property for a business, you will need to know if the lease is an operating lease or a capital lease, because they require different handling for accounting purposes.

Operating leases

bullet The lessor retains the benefits and risks of owning the property.
bullet The time span of the lease is usually much shorter than the estimated life of the asset.
bullet Maintenance of the asset is often the responsibility of the lessor.
bullet Lease payments are expensed as they are paid, except for prepayment for future payments, such as the final month of the lease.

Capital leases (also known as financial leases)

bullet Most of the benefits and risks of owning the property are essentially transferred to the lessee.
bullet The lease term usually provides for ownership to be transferred to the lessee by the end of the lease, perhaps with a clause allowing for buyout at a very reasonable price.
bullet The time span of the lease covers a significant portion (usually 75% or more) of the estimated life of the asset.
bullet Maintenance and other costs are typically the responsibility of the lessee.
bullet The cost of the asset is capitalized (recorded as part of property, plant and equipment) by the lessee, with the present value of future lease payments recorded as a liability.  The capitalized cost is then depreciated, either over the estimated life of the asset, or over the term of the lease.  As lease payments are made, they are allocated to interest expense and a reduction of the lease liability.

Leverage

Leverage is the use of debt to increase return on investment.  When a firm has a high debt/equity ratio, it is said to be highly leveraged.

Liabilities

Amounts owed.  These may be current, which means due to be paid within 1 year, or they may be long term, which means not due for at least 1 year.

Life annuity

A life annuity provides the purchaser with regular periodic payments (weekly, monthly, etc.), usually for the rest of their life.  The amount of the payments will depend on current interest rates, the age and sex of the purchaser (and perhaps their spouse), and the type of annuity being purchased.  There are many different types of life annuities.  Depending on the type of life annuity:

bulletpayments may cease when the annuitant (purchaser) dies, even if the annuity was recently purchased
bulletcertain number of payments may be guaranteed
bulletpayments may continue to be paid to a surviving spouse
bulletcash payment may go to the estate or a named beneficiary when the annuitant dies

With an immediate life annuity, payments are started within one year after the purchase of the annuity.

With a deferred life annuity, payments are started no earlier than one year after the purchase of the annuity.

Limit order

A limit order is an order to buy or sell securities on the stock market at a specified or better price.

See also market order.

Limited liability

The owners or shareholders of a limited company are normally only liable for the amount they have invested in the company.  If the business fails, they are not responsible for the debt of the company.

Limited Partnership

A limited partnership will have two classes of partners - general partners, and limited (or special) partners.  The liability of the limited partner(s) will be limited to the amount of capital they have contributed to the partnership.  However, certain actions by a limited partner will deem them to be a general partner and end the unlimited liability, such as taking an active roll in the management of the business.  In a limited partnership there must be at least one general partner who has unlimited liability. 

Liquidity

The liquidity of a stock refers to the ease with which it can be bought and sold.  If large volumes are usually traded in the stock, it is liquid.  If small volumes are usually traded, it is illiquid.

Listed stock

A listed stock is one which is listed, or traded, on a stock exchange.

Long

Signifies ownership of securities.  If a person is "long" 100 shares of a corporation, it means that they own 100 shares of the corporation.  See also "short"

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Revised: August 08, 2017

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