The Financial factors that Influence the Profitability of SMEs

Abstract

The main objective of this paper is to identify the financial factors that impact on the functionality and profitability of SMEs (Small and Medium-sized Enterprises). Our research has been applied to small and medium enterprises from Romania taken into consideration the financial indicators from 2009 to 2012 in order to test the correlation between them and the profitability of the invested capital. We chose SMEs because in the last decade there have been significant developments in this sector which have increased its importance. Our study results showed that managerial decisions on investment can influence decisively the profitability of SMEs especially in a period of economic instability. The importance of SMEs in a developing country like Romania is crucial, the development of this sector has direct effects on the development of the country mainly because SMEs represent about 99% of all firms in Romania, providing approximately 50% of GDP and also providing approximately 65% of the jobs. Introduction Economic and social transformations caused changes in the way of doing business. At international level there are more lively and frequent public debates on the factors which influences the activities of the companies. The factors that influence the activity of a company can be divided into two main groups: micro or internal (company-specific factors) and macro factors or external (often specific to the state or region where the company operates). Small and Medium-sized Enterprises are considered the heart of the economy in every state of the world and their importance is increasing, SMEs were recognized as the heart of economic restructuring plan in USA in 2013. These companies have a lot of specific advantages: creates new jobs, produce products and services at lower cost, generates over half of GDP and about 60% of the country's exports etc. (Nicolescu, 2001). Yet, the main argument we have in elaborating this study on SMEs is that they represent more than 95% of all companies (OECD, 2004).