Maximizing Returns: A Deep Dive into the Financial Strategies of SMEs in Morogoro Municipality

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.