Abstract
This study investigates the determinants of Return on Investment (ROI) among Small and Medium Enterprises (SMEs) in Morogoro Municipality using a cross-sectional research design and a multiple linear regression model. The analysis reveals that the capital structure, comprising private savings, bank credit, reserved earnings, non-bank loans, equity, and trade credit, plays a crucial role in influencing the financial performance of these businesses. The results indicate that private savings, non-bank loans, and trade credit are the most significant contributors to higher ROI, with coefficients of 0.305, 0.353, and 0.296, respectively, all significant at p<0.01. Bank credit also positively impacts ROI, though to a lesser extent, with a coefficient of 0.095 (p<0.05). However, reserved earnings and equity were not found to significantly affect ROI, suggesting that their effectiveness in enhancing profitability may depend on specific business strategies and resource allocation. The study suggests that SMEs should focus on leveraging private savings, non-bank loans, and trade credit to optimize their financial performance. Finally, it recommends that policymakers and financial institutions support SMEs in accessing diverse and flexible financing options to enhance their profitability and ensure sustainable business growth.
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