The Finance Dictionary

This information provides users with thorough and reliable meanings to all the most common, and even uncommon, financial terms

Financial Terms Beginning With The Letter L

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, or over $1 billion for Canadian 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

  • The lessor retains the benefits and risks of owning the property.
  • The time span of the lease is usually much shorter than the estimated life of the asset.
  • Maintenance of the asset is often the responsibility of the lessor.
  • 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)

  • Most of the benefits and risks of owning the property are essentially transferred to the lessee.
    • 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.
    • The time span of the lease covers a significant portion (usually 75% or more) of the estimated life of the asset.
  • Maintenance and other costs are typically the responsibility of the lessee.
  • The cost of the asset is capitalized (recorded as a fixed asset) 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:

  • payments may cease when the annuitant (purchaser) dies, even if the annuity was recently purchased
  • certain number of payments may be guaranteed
  • payments may continue to be paid to a surviving spouse
  • cash 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.

Life income fund (LIF)

A LIF is a locked-in account which has been created with funds that originated with a registered pension plan (RPP). A LIF is treated in the same manner as a RRIF under the Income Tax Act. LIFs are governed by federal or provincial pension legislation. Some provinces have LIFs, some have LRIFs, and some have both. One difference, where both exist, is the calculation of maximum annual withdrawals.

Characteristics of a LIF:

  • the owner of the LIF controls which investments are held
  • a LIF is subject to the same minimum withdrawal rules as a RRIF
  • a LIF is subject to maximum withdrawal rules under either federal or provincial legislation

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. There are some instances in which directors can be held liable for certain debts, such as GST/HST and payroll taxes. With a professional corporation, the shareholder's personal assets may be at risk in the case of professional malpractice.

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 personal property (LPP)

Listed personal property is a type of personal-use property which usually increases in value over time, including stamps, coins, works of art, jewellery, and rare books, folios or manuscripts.

If you have LPP which you purchased for more than $1,000, and you sell the property for more than you paid, you will have a capital gain to report on your tax return.

If you sell the property at a loss, the loss can only be used to reduce the gain from the sale of other LPP. The loss can be carried back 3 years or carried forward 7 years to be used to reduce the gain from the sale of other LPP in those years.

Listed stock

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

Locked-in retirement account (LIRA)

A LIRA is also known as a locked-in RRSP. A LIRA holds funds that have been transferred from a registered pension plan (RPP). RRSP contributions cannot be made to a LIRA, and no withdrawals can be made. The LIRA must be converted, by the end of the year in which the holder turns 69, to a:

  • life annuity
  • life income fund (LIF), or
  • locked-in retirement income fund (LRIF).

Locked-in retirement income fund (LRIF)

An LRIF is a locked-in account which has been created with funds that originated with a registered pension plan (RPP). An LRIF is treated in the same manner as a RRIF under the Income Tax Act. LRIFs are governed by federal or provincial pension legislation. Some provinces have LIFs, some have LRIFs, and some have both. One difference, where both exist, is the calculation of maximum annual withdrawals.

Characteristics of an LRIF:

  • the owner of the LRIF controls which investments are held
  • an LRIF is subject to the same minimum withdrawal rules as a RRIF
  • an LRIF is subject to maximum withdrawal rules under either federal or provincial legislation

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"