Publications

representing 90% of global businesses and generating 50% of job opportunities. In Uganda,this sector employs approximately 2.5 million individuals and contributes 18% to the GDP.Despite this significant impact, 45% of Ugandan SMEs face imminent collapse due to financialhurdles. Consequently, this study aimed to explore how capital structure influences thefinancial performance of SMEs in Mitooma District. The objectives were to scrutinize theimpact of equity capital, debt capital, and retained earnings on SMEs' financial performance.Grounded in the Pecking Order Theory and Trade Theory, the study followed a quantitativeresearch approach employing a descriptive research design. With a population of 836, ascientifically determined sample of 271 was selected through random and purposivesampling methods. Data collection involved a validated and reliable questionnaire. Usingregression analysis through SPSS, the study found that the model provided a robust level ofprediction (R=.678), explaining 45.9% (R2=.459) of the variability in SMEs' financialperformance. Specifically, equity capital (t=-1.975, P=.045, P<.05), debt capital (t=7.015,P=.000, P<.05), and retained earnings (t=6.289, P=.000, P<.05) emerged as statisticallysignificant factors. Conclusively, the study highlighted that equity capital, debt capital, andretained earnings significantly influence SMEs' financial performance. To enhance theirfinancial standing, the recommendation is for SMEs to adopt innovative strategies. Thesefindings hold relevance for policymakers, SME stakeholders, academic circles, and SMEowners, offering valuable insights into bolstering this critical sector.Keywords: Small and medium Enterprises, Economic development, financial performance,Equity capital, Retained earnings.