Guide to Analysing Companies

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pays the interest out of the cash flow of the company
being bought. That is mainly why many successful buy-outs are
of companies with a healthy cash flow.
Liability
A claim on the assets of an individual or company. A liability
(such as a debt) shows up once it has been incurred. In a
company’s balance sheet, assets are always equal to liabili-
ties, plus a balancing amount of shareholders’ funds.
Liability management
The business of managing a bank’s liabilities (particularly its
deposits). The trick is to structure them so that the risk, ma-
turity and liquidity are related as closely as possible to the
(changing) demand for loans (that is, assets). At the same
time, of course, the bank must aim to make money on each and
every one. For companies, liability management usually applies
to their exposure to foreign currencies. The risk that a
company’s earnings may suffer because of a fall in the value
of foreign currencies can be hedged in a variety of ways. One
way is to take out currency or interest-rate swaps in the
futures and options markets.
Libor
See london interbank offered rate.
Lien
Obtaining certain rights to property until the time that the debt
owed by the owner of the property has been repaid. For as long
as a lien exists on a property, the owner loses the right to sell it,
even though he or she may retain legal ownership of it.
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Life assurance
See assurance and insurance.
Life company
Short for life assurance company (see also insurance).