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Analyzing determinants of profit of small and medium enterprises in the Mekong Delta

This paper aims at getting an insight into determinants of return of small and medium enterprises (SMEs) in the Mekong Delta through the estimation of the regression model in which return on sales (ROS), or operating profit margin, is a dependent variable, and determinants of their profit are independent variables. | ECONOMIC DEVELOPMENT No. 204, August 2011 ANALYZING DETERMINANTS OF PROFIT OF SMALL AND MEDIUM ENTERPRISES IN THE MEKONG DELTA by Assoc. Prof., Dr. LEÂ KHÖÔNG NINH* This paper aims at getting an insight into determinants of return of small and medium enterprises (SMEs) in the Mekong Delta through the estimation of the regression model in which return on sales (ROS), or operating profit margin, is a dependent variable, and determinants of their profit are independent variables. The estimation is based on primary data gathered from 1,017 enterprises in the period 2006 - 2010. The results reveal that their ROS is affected by (1) ratio of fixed assets to sales, (2) sizes of the enterprises, (3) the ratio of current assets to sales, (4) and (5) the age and origin of machinery, and (6) the GDP growth rate. The paper, thereby, proposes measures to raise SMEs’ returns. Keywords: profit, sales, small and medium enterprises, economic growth 1. Introduction Profit is one of the primary goals of a business. It is vital for the development of not only the business itself and industry but also the whole economy. Especially for SMEs, profit is even more important because it allows them to expand their scales and modernize their technology for a future sustainable growth. Practical experiences, along with previous studies, show that an enterprise’s profit is influenced by both microeconomic factors belonging to the enterprise itself (capital, managing capabilities, and scales, etc.) and macroeconomic factors (economic growth rate, interest rates, inflation, performance of governmental bodies). However, effects of these factors are not always the same, that is, some of them make impacts in certain situations and at certain times while the others do not, and vice versa. Hence, it is of necessity to fathom the factors to improve businesses’ profit, thereby promoting economic growth, as businesses are producers of goods, a primary component of the gross output of a province, region