Labour-intensive An industry that requires large numbers of employees and relatively less capital funds and equipment.

LAN (Local area network) The term used to describe computers that have been linked together within an organization or company.

Lead time The time it normally takes to receive an order (i.e., from the moment the order is placed until the goods are received).

Lease A contract in which the owner of a piece of property gives the exclusive use of it to someone else, in exchange for a stated sum of money, for the duration of a specific time.

Leasehold improvement Renovation and other improvements made to the business premises. These become the property of the landlord.

Letter of credit (L/C) An arrangement whereby an importer arranges with his or her bank to transfer the amount of the transaction to a Canadian bank for payment to the Canadian exporter. This amount is available to the exporter provided the requirements of the letter of credit are met. When the exporter presents the invoices and shipping documents to the bank, he or she receives immediate payment.

Letters patent Charter, documents issued by the government making a new corporation legitimate.

Leverage The ratio by which debt exceeds equity. A healthy ratio is usually not more than 2 to 1, ideally 1: 1. Too high a leverage can make a company highly vulnerable in times of economic downturn or reduced profit.

Leveraged buy-out To complete the financing in the purchase of a company, the purchaser borrows against its unused borrowing capacity (usually based on the company’s market value of its assets rather than the book value).

Liabilities All the debts of a business. Liabilities include short-term or current liabilities such as accounts payable, income taxes due, the amount of long-term debt that must be paid within 12 months; and longterm liabilities such as long-term debts and deferred income taxes. On a balance sheet, liabilities are subtracted from assets; what remains is the shareholder’s equity or ownership in the business.

Lien A charge placed over an asset by such parties as (1) the seller of that asset or (2) in the case of construction or repairs, by the person (contractor) who carries out the work. The lien holder may take possession until the asset/work is paid for in full. Liens must be registered under the various provincial laws in order to be protected and enforceable.

LIFO (Last In, First Out) A method of valuing inventory, where the merchandise acquired latest is assumed to be used immediately and what was acquired earliest is assumed still to be in inventory. LIFO attempts to match the current cost of materials against current sales. Compared to FIFO (see separate definition), the LIFO method usually results in the reporting of less income when prices are rising, and more income when prices are falling. Under LIFO, current purchase prices immediately affect operating results. It allows adjustment of selling prices to reflect current costs and therefore the maintenance of gross margins.

Limited company A separate legal entity that is owned by shareholders for the purpose of carrying on business. Assets and liabilities of owners (shareholders) are separate from the company. Can be private or public, as well as provincial or federal. Also called incorporated company or corporation.

Limited liability The legal protection accorded shareholders of an incorporated company whereby the owner’s financial liability is limited to the amount of his or her share ownership, except where he or she owes money to the company or has assumed additional liabilities (e.g., personally guaranteeing its debts).

Limited partnership A legal partnership where certain owners assume responsibility only up to the amount of their investment. Investors who put up money for a business venture without being directly involved in its operation are not held responsible for the debts of the other partners beyond the possible loss of the money they have invested.

Line of credit A negotiated agreement with a bank, subject to periodic review, whereby the borrower is permitted to draw upon additional funds up to a specified limit at a certain rate of interest (e.g., prime rate plus 2%).

Lines of communication The ways in which people pass information within an organization. Note that there are both formal and informal (grapevine) lines of communication in all organizations.

Liquid assets Cash on hand and anything that can easily and quickly be turned into cash.

Liquidate To settle a debt or to convert to cash.

Liquidity A term used to describe the solvency of a business and which has special reference to the degree of readiness in which assets can be converted into cash without a loss. Also called cash position. If a firm’s current assets cannot be converted into cash to meet current liabilities, the firm is said to be illiquid. A frequent measurement of liquidity is the quick or acid test ratio (see Acid test ratio).

Long-term liabilities Debts that will not be paid off within one year.

Loss leader An item sold at a loss in order to attract buyers who will then buy other items as well. The capacity of certain large retail chains such as supermarkets to sell at a loss for the sake of eventual profit gives them an advantage over small independent retailers.