The previous module formalized the relationship between performance and value, and showed that growth can play an accelerating role, but that it consumes financial resources.

This raises the question of financing growth.

Before mobilizing external resources, the company must examine the impact of a modification of its debt on its financial profitability, then on its capacity for autonomous growth. The financial structure ratio that characterizes the respective weightings of debt and equity in the financing of the firm is named financial leverage and is calculated by dividing the net financial debt by equity: Leverage = D / CP.

The relationship between financial profitability and the debt structure is named leverage effect.

This last module describes the leverage effect, its impact on financial profitability and, after introducing the dividend policy, the firm’s autonomous growth capacity, called (self-) sustainable growth.

It will allow us to conclude, once again, on the fundamental importance of the profitability generated by the firm’s invested capital, the ROCE.

Exercise related to the video

Once you’ve watched the video, you can do an exercise to practice what you’ve just learned and assess your understanding of financial leverage, operating profitability and growth financing.