5. Borrowing: how much and at what rate

5.1 Financial structure

In France, the reconstruction and development that followed the Second World War were largely financed by borrowing. Long- and medium-term loans were first distributed by specialized financial institutions, then by all commercial banks. Strong growth during the "thirty glorious years", and continued monetary drift, minimized the consequences of insufficient equity capital for many companies.

Borrowing on advantageous terms brought the leverage effect into full play. Leverage means that when the return on invested capital exceeds the cost of borrowed capital, earnings in excess of this cost increase the return on equity. It's only a short step from there to saying that the ratio of debt to equity should be as high as possible. This phenomenon...