Glossary of Terms

The information presented here is not intended as financial, investment, tax or legal advice and is provided for educational purposes only.
L
Term
Explanation
Large Capitalization Stocks
The stocks of companies whose market value is more than $10 billion.

 

Letter of Intent
An agreement between a mutual fund investor and a mutual fund company in which the investor expresses a desire to invest a certain amount of money over a specified period (often 13 months) in order to qualify for reduced sales charges. A letter of intent allows a smaller investor to qualify for breakpoints (reduced sales charges) by investing smaller amounts regularly over time, in the same way wealthier investors can qualify for reduced sales charges by making a single large investment. A letter of intent is not a contract; if the investor invests too little money to trigger breakpoint discounts, he is simply charged the normal, non-discounted sales charge.
Leverage
The use of certain financial instruments or borrowed capital, such as margin, to increase the potential return of an investment. Homebuyers use leverage when they borrow money to buy a home; their mortgages represent borrowed capital. While leverage may increase investors' potential returns, it also increases risk and potential losses. If the value of an investment purchased with borrowed money declines, the investor not only suffers a loss on his investment, but also incurs borrowing costs.
Leveraged Buyout
The acquisition of one company by another that is financed largely with borrowed money. Often, the assets of the company being acquired, as well as the assets of the acquiring company, are used as collateral for loans. Leveraged buyouts allow companies to make large acquisitions without having to commit a great deal of capital.
Liability
A claim on the assets of an individual or a corporation, excluding ownership equity. A liability represents a transfer of assets or services at a specified date. The corporation or individual has little or no discretion to avoid the transfer because the event causing the obligation has already occurred.
Libor
The London Interbank Offered Rate. The Libor is the world's most widely followed benchmark for short-term interest rates. Fixed daily, the Libor is the interest rate at which banks in the London interbank market can borrow overnight funds from one another. It serves as a base when determining interest rates for corporations and other large borrowers.
Lipper
An independent and widely followed mutual fund performance monitor. Lipper, Inc., a Thomson Reuters company, is a global leader in supplying mutual fund information, analytical tools and commentary. Based on total return performance, Lipper calculates mutual fund rankings within a variety of categories.
Liquidity
The ease with which an asset or security can be sold (i.e., converted into cash) in the market without affecting its price. Assets that can be easily bought or sold are known as liquid assets. The stock of a widely held public corporation or a short-term Treasury bill would both be considered more liquid than a home.
Liquidity Crunch
See Credit Crunch. See Credit Crunch.
Liquidity Ratio

A measure of how much dollar trading volume is required to move a stock's price up or down by one percentage point. The ratio is calculated by adding the daily percentage changes of a stock's closing price for each trading day of the month. Absolute values are used — only the magnitude of change, and not the direction. Then the total dollar volume for the month is divided by this total-percentage-change figure.

A high ratio indicates a stock that requires relatively heavy trading to move its price. A low liquidity ratio indicates a stock that moves on relatively light volume.

Living Will
A legal document in which an individual, prior to a final illness or injury, expresses his wishes about what procedures and equipment should, or should not, be used to extend his life. A living will is also called a directive to physicians.
Load
A fee paid by an investor when buying (or in some case, selling) shares of a mutual fund that charges a front-end load or contingent deferred sales charge. See Contingent Deferred Sales Charge and Front-End Load.
Load Fund
A mutual fund that imposes a front-end sales charge when investors buy shares or a contingent deferred sales charge when investors sell shares.
Long-Term Debt
Liabilities that are expected to be paid after 12 months from the date of the last balance sheet. A company's long-term debt could be in the form of bank debt, mortgage bonds, debenture bonds or other obligations.
Long-Term Gain or Loss
A capital gain or loss on an investment which was held for at least some minimum amount of time (often a year and a day). A long-term gain usually results in a lower tax rate than a short-term gain.
Long-Term Investment Strategy
A strategy that looks past the day-to-day fluctuations of the stock and bond markets and responds to fundamental changes in the financial market or the economy.
Long-Term-Debt/Equity Ratio

A measure of a company's leverage, calculated by dividing its long-term debt by its shareholders' equity, using figures from its most recently reported balance sheet.

The lower a company's debt/equity ratio, the less encumbered it is by debt. Whereas debt/capital ratios show debt relative to the value of things a company owns and the money it has borrowed, debt/equity ratios show debt relative to just the things it owns.

Long-term-debt/Total-capital Ratio

A measure of a company's leverage, calculated by dividing its long-term debt by its total capitalization (preferred stock equity plus common stock equity plus long-term debt).

The lower a company's long-term-debt/total-capital ratio, the less encumbered it is by debt. Whereas debt/equity ratios show debt relative to the value of things a company owns, debt/capital ratios show debt relative to the things it owns and the money it has borrowed.

Loss Harvesting
Selling enough loss positions from a fund portfolio to eliminate the need to distribute taxable gains. In a separate account portfolio, the investor's total gain and loss position will be considered in deciding what losses to harvest. See also harvesting losses.
Lump-Sum Distribution
A single payment that represents an employee's interest in his or her qualified retirement plan - triggered most commonly by retirement (or other separation from service), death, disability or attainment of age 59-1/2. A lump sum distribution must be made within a single tax year to avoid the federal government's 10% penalty tax. Most often, individuals receiving a lump-sum distribution immediately deposit the funds in an IRA rollover account. See Rollover.