This study examined the relationship between capital structure decision and performance of quoted small and medium scale enterprise in Nigeria. The objective was to investigate how various components of capital structure affects return on equity. Ten small and medium enterprises were selected from the population. Panel time series data were sourced from audited financial statement of the sampled small and medium enterprises.  Return on equity was modeled as the function of debt capital equity capital and retained earnings. Fixed effect model was adopted after a cross examination of the validity of the models.  It was found that 89.6 percent of the total variations in the return on equity is accounted for, by the explanatory variables. findings proved that short term debt ratio have positive but no significant effect, retained earnings  have positive but no significant effect, debt to total assets ratio  have positive but no significant effect while ordinary share capital and  debt equity ratio have negative  and no significant effect on return on equity of the quoted small and medium scale enterprise. The study recommends that Small and medium scale enterprises should finance projects with retained earnings, debt capital and equity capital; this is in agreement with the pecking order theory. The quoted small and medium enterprise firms have to pay attention to financing aspects represented by differentiation between different financing sources, and in particular investment debt funds in are turn exceeds capital cost, which affects profitability growth and sales volume. The quoted small and medium enterprise firms should be aware of the relationship between capital structure decisions and profitability taking into accounts the conditions of external environment as an important factor in the analysis of their strategies