Exploring the Relationship Between Capital Structure and SME Profitability: A Case Study of Lusaka's Electronic Device Market

The capital structure decisions made by Small and Medium Enterprises (SMEs) within the electronic device market in Lusaka, Zambia, significantly impact their financial health and long-term sustainability. This study aims to understand how the allocation of financing through debt and equity affects SME profitability, filling a gap in empirical evidence specific to Zambia's electronic device market. Capital structure decisions play a pivotal role in determining firms' financing policies and overall performance. Through a descriptive research design and panel data analysis, this study investigates the relationship between capital structure and profitability. Findings reveal that while factors such as financial risk, market conditions, and access to financing options may influence SME profitability, the effects are not statistically significant. However, better access to financing options and favorable market conditions are associated with higher growth prospects. Recommendations include exploring additional factors affecting SME growth, adopting a comprehensive approach to financing, conducting market analysis, enhancing financial risk management, capacity building, and government support. Policymakers and SMEs can utilize these insights to optimize capital structure decisions, foster growth, and contribute to economic development in Zambia's electronic device market. Further research, including longitudinal studies, is recommended to deepen understanding and inform strategic decision-making in this dynamic sector.