The thesis analyzes the impact of leverage ratios on profitability ratios in small and medium enterprises in the manufacturing industry in Croatia. The debt ratio, the self-financing ratio and the debt to equity ratio were used as leverage ratios, and the gross profit margin, return on assets and return on equity were used as profitability ratios. The research problem is reflected in the fact that certain connections between individual financial indicators can differ significantly depending on the activity itself, and it is possible that the connection between financial indicators is influenced by insufficient development and adjustment of the capital market in Croatia. The research used methods of analysis and synthesis, abstraction and concretization, generalization and specification, whereby conclusions were deduced on the importance of the impact of financing on the profitability of small and medium-sized processing enterprises. The relationship between these indicators was measured using correlation analysis and regression analysis. Despite numerous studies that have proven the existence of a correlation between leverage and profitability ratios, the results of this thesis led to the conclusion that there is no correlation between these ratios and that there is no statistically significant impact of selected leverage ratios on profitability ratios in small and medium enterprises in the manufacturing industry. Given the number of studies that have shown the existence of a correlation, it would be useful to extend this research by including more variables to show which variables are more important for profitability than the method of financing itself.