Effects of capital structures on financial performance of small And medium enterprices: a case study of small and medium Enterprise in narok town

Abstract

The study was to investigate the effects of capital structure on the financial performance of SMEs in Narok Town. The target population was 48 small business where 31 responded. The study sought to assess the effects of the use of equity as a source of finance on the financial performance of SMEs, assess the effect the use of debt as a source of finance on the financial performance of SMEs and investigate the challenges being faces by SMEs. The study adopted the pecking order theory and trade off theory. Stratified random sampling was utilized in selecting the respondents for the study. Primary data was collected from the study respondents using questionnaires. Data was analyzed descriptively and presented through figures, tables, percentages and tabulation to show differences in frequencies. The study found out that most SMEs finance their capital through the use of both equity and internal sources. Capital structure has a significant effect on both profitability and sales growth of the SMEs.