Capital Structure and Financial Performance of Small and Medium Enterprises in Uganda: A Case Study of Kabale Municipality, Kabale District
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Date
2024-10-14
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Uganda Christian University
Abstract
The study was carried out to establish the effect of capital structure on the financial performance of SMEs in Kabale Municipality. Specifically, the study concentrated on establishing the effect of debt capital on financial performance of SME’s in Kabale Municipality, the effect of equity capital on financial performance of SME’s in Kabale Municipality and determining the effect of retained earnings on financial performance of SME’s in Kabale Municipality. The study involved 225 respondents from 3 sectors of food processing, real estate, and accommodation and food services and it adopted cross-sectional designs using both quantitative and qualitative Research approaches. Data analysis was done using SPSS and interpreted using mean range 5- point Likert scale and Pearson correlation analysis. This study found out that there is a positive and significant relationship between effectiveness in debt capital and financial performance of selected SMEs in Kabale Municipality. The relationship between the two variables is supported by the r. value of 0.391**and significant value of 0.000. This finding implies that any unit improvement in effective use in debt capital among the selected SMEs in Kabale Municipality can lead to improvement in the level of financial performance among SMEs in Kabale by 39.1 %. The study also found out that any variation in equity capital implementation will lead to a positive and significant variation in financial performance. This finding is confirmed by the Pearson Correlation value (r) of 0.411** and significant value of 0.000 which is far less than the standardized significant value 0.05. This finding suggests that any unit improvement in effectiveness in equity capital among the selected SMEs in Kabale Municipality can lead to improvement in the level of financial performance by 41.1 %. Lastly this study found out that effective use of retained earnings can significantly and positively impact on financial performance of the selected SMEs in Kabale Municipality. This finding is supported by the significant value of 0.000 and the Person Correlation of 0.698**. This finding means that the financial performance of the selected SMEs in Kabale Municipality will be boosted by 69.8% in every unit improvement in the effective use of retained earnings among SMEs. Based on the conclusions related to the specific objectives, it can be concluded that there is a significant relationship between capital structure and financial performance among SMEs in Kabale Municipality-Uganda.