Glossary of Finance Terms

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Lessee
The party that uses, rather than the one who owns, the leased property.
Lessor
The owner of the leased property.
Leveraged Buyout (LBO)
A situation in which a small group of investors (which usually includes the firm's managers borrows heavily to buy all the shares of a company.
Limited Liability Partnership (Limited Liability Company)
A hybrid form of organization in which all partners enjoy limited liability for the business's debts. It combines the limited liability advantage of a corporation with the tax advantages of a partnership.
Limited Partnership
A Hybrid form of organization consisting of general partners who have unlimited liability for the partnership's debts, and limited partners, whose liability is limited to the amount of their investment
Line of Credit
An informal arrangement in which a bank agrees to lend up to a specified maximum amount of funds during a designated period.
Liquid Asset
An asset that can be converted to cash quickly without having to reduce the asset's price very much.
Liquidation
A liquidation occurs when the assets of a division are sold off piecemeal, rather than as an operating entity.
Liquidity Preference Theory
The theory that lenders, other things held constant, would prefer to make short-term loans rather than long-term loans; hence, they will lend short-term funds at lower rates than long-term funds.
Liquidity Premium (LP)
A premium added to the equilibrium interest rate on a security if that security cannot be converted to cash on short notice and at close to "fair market value."
Liquidity Ratios
Ratios that show the relationship of a firm's cash and other current assets to its current liabilities.
Lockbox Plan
A procedure used to speed up collections and reduce float through the use of post office boxes in payers' local areas.
Long Hedges
Futures contracts are bought in anticipation of (or to guard against) price increases.
Long-Term Equity Anticipation Security (LEAPS)
Long-term options that are listed on the exchanges and tied to both individual stocks and to stock indexes.
Low-Regular-Dividend-Plus-Extras
The policy of announcing a low regular dividend that can be maintained no matter what, and then when times are good paying a designated "extra" dividend.
Lumpy Assets
Assests that cannot be acquired in small increments but must be obtained in large, discrete units.


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