Encumbrance

A registered claim over an asset - a charge, lien, mortgage or security interest - held by someone other than the owner.

Example

A charge over the plant securing 380,000 of borrowing that did not appear in the seller's summary.

Important

An encumbrance for a known amount is usually price rather than a deal killer: it is settled at completion and the price moves by that figure. What makes one serious is being unquantified or undiscovered.

Related terms

• Deal killer — An established finding that no achievable price can address - because the asset stops being the asset, because the exposure has no floor, or because the counterparty has been shown to be unreliable.
• Balance sheet — A statement of everything a business owns and everything it owes at one specific moment. What is left after subtracting the second from the first belongs to the owners.
• Net debt — Borrowings minus cash. The measure of indebtedness that accounts for the money already sitting in the bank to repay it.

Lessons that explain it

• Deal killers: the findings that end it — A deal killer is not a very large red flag. It is a fact that has already been established and that no price adjustment can reach. (8 min)

All 578 terms in the Investing glossary