Financial Engineering…?

So, normally when people use the term financial engineering what they mean is that a company used leverage or some other type of financial instrument to optimize it’s capital efficiency.

I don’t really get why we use the term financial engineering to describe increased leverage. By definition, if you are overleveraged, you are at higher risk of blowing up.

You see, engineers are the group of people that make trains and cars and airplanes and what not. When an engineer engineers something that people use, say a bridge, they are inclined to overcompensate. Because they need it to be, you know, safe.

Back in the days of Andy Grove, Intel made sure to always have cash on its balance sheet that could cover 2.5 years of selling, general and administrative expenses. Now, that is what we should be calling financial engineering.

Published by

Gísli Eyland

There are just too many interesting things going on

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