Study Of The Sme Profitability And Capital Structure Correlation

As a whole,the SME has made the prominent contributions in the various countries' economic developments, now; but universal survivability of our country's SME are actually weak, competitive powers are not strong ; the literatures which research the SME are not many, therefore, this article takes the SME as an object of studying . Enhancing profitable ability of the SME is the foundation that we improves survival conditions of Chinese SME, but many kinds of factors have restricted the developments of the SME, these are both reasons of the internal bad management, and limits of the exterior capital . The capital structures can response to an enterprise's internal governance and the ability to use external funding; so this paper focuses on relevance of the profitability of the SME and capital structure.The purpose of this article is that we analyze whether the debt of the SME has the reasonable sector, whether there is a reasonable ratio between the long-term debt and current liabilities through researching relevance between profitable abilities of the SME and the capital structure; we make some proposals to improve the profitability of the SME in China according to the results of the study. Therefore, the content of this article is arranged as follows: the first chapter is the introduction, it introduces the theoretical and practical significance of this study; the second chapter is the relevant theories of the capital structure and the profitability and it summarizes these theories, they are theoretical bases of this study; the third chapter is the general overviews of the SME; it introduces mainly the characteristic, the status and the function of the SME and analyzes present situations of capital structure, the present situations of profitability, as well as the relevance; the fourth chapter is the empirical study of relevance between the capital structure and the profitability, we calculate composite indicator of profitability with the principal component analysis, then we carries on the regression analysis with the capital structure target and draw conclusions with the third chapter of statistical results; This article draws the following conclusions through the empirical analysis: the correlation become inverse between the ratio of debt and profit ability, the profit ability will increase when the ratio of debt decreases; one reason of this result is poor financial management, the fluctuation of the enterprise net cash flow is big so that many enterprises give up the benefits which the debt creates, the other is that it is difficult to obtain long-term debt from the capital markets for the SME. The ratio of current liabilities is too large, the correlation become inverse between the ratio of the current liability and profit ability, the profit ability will reduce when the ratio of the current liability elevates; the reason of this result is that the SME is difficult to obtain long-term debt from external funds so that they can only replace long-term fund with the floating capital. The fifth chapter is the recommendations improving the SME profitability of China; we put forward specific recommendations through the conclusions of the in-depth analysis. So, this paper makes the following recommendations: the first is that the SME should strengthen financial management; the second is that the SME should strengthen mutual cooperation; the third is that the debt market of the SME should be developed; the fourth is that the mechanism protecting debtor should be improved for the SME; finally, the competing mechanism should be strengthened among the managers and the institution should be improved.Innovations of this article is that it explore relevance between the profitability and the capital structure through the SME, but the existing literature is based on large companies as an example before this; the existing literature has only studied linear relationships between the profit ability and the capital structure, This article studies whether there are reasonable ranges in the capital structure of the SME of China, as well as whether the structure of the debt is reasonable. And a larger sample is selected in this paper, so that the analyses are more objective and clear.