Key Findings
- The average total debt across SaaS companies declined by 13.4% in 2025.
- As debt declined, profitability increased, as median Return on Equity (ROE) improved from -11% in 2022 to 7% in 2024.
- In 2025, Descartes Systems Group Inc. (DSGX) is the healthiest publicly traded company with a debt health score of 91.60.
A new report by The Kaplan Group analyzes the debt and financial health of 46 leading SaaS companies using data extracted from SEC filings, spanning 138 records from 2022 to 2025.
The analysis reveals significant industry-wide deleveraging trends (e.g., reducing debt).
The industry has moved from negative profitability in 2022–2023 to positive returns by 2025. At the same time, these companies have become much more careful about taking on debt, using less borrowing and keeping their finances safer overall.
Declining debt and growing profitability
The industry has undergone significant financial transformation over the analyzed period.
Median debt-to-asset ratio is the clearest indicator of how much leverage the typical SaaS company is using. Over the past few years, this ratio has dropped dramatically—from 16.8% in 2022 to just 3.1% in 2025. This means that, by 2025, the median SaaS company is financing only a tiny fraction of its assets with debt, reflecting a major shift toward more conservative balance sheets.
At the same time, the median debt-to-equity ratio has also fallen sharply, from 32.8% in 2022 to just 5.2% in 2025. This shows that companies are relying much less on debt compared to their equity, further highlighting the industry’s move away from leverage.
Profitability has improved as well. The median return on equity (ROE) was negative in 2022 and 2023, indicating that most companies were not generating positive returns for shareholders. However, by 2024 and 2025, the median ROE turned positive, showing that the typical SaaS company is now delivering value to its investors.
Ranking SaaS companies based on debt health score
The debt health score is a composite metric that evaluates each SaaS company’s ability to manage debt effectively. It combines three key financial ratios—Debt-to-Assets, Debt-to-Equity, and Free Cash Flow to Debt—into a single score from 0 to 100, with higher scores indicating better debt management. Companies are then categorized as Excellent (80+), Good (60-79), Fair (40-59), Poor (20-39), or Very Poor (below 20).
The top performers like DSGX (91.6), ZM (90.3), and VEEV (87.7) have minimal debt relative to their assets and strong cash generation, while companies like NET (4.8), CFLT (6.1), and AKAM (9.3) struggle with high leverage and weak cash flow coverage.
The distribution shows a polarized industry—only 5 companies achieve “Excellent” scores, while 18 companies fall into “Poor” or “Very Poor” categories. This suggests that a significant portion of SaaS companies still carries concerning levels of financial risk.
Companies that generate strong free cash flow relative to their debt obligations score higher in our analysis, even when they carry moderate amounts of leverage. This demonstrates that operational cash generation—not just minimal borrowing—is the key to sustainable debt management. A company with $100M in debt but $50M in annual free cash flow is in a much stronger position than one with $50M in debt but only $5M in free cash flow.
Methodology
This study uses data sourced from annual reports (10-K filings) and includes key financial statement items such as balance sheet components (Total Debt, Long-Term Debt, Short-Term Debt, Total Liabilities, Total Equity, Total Assets), income statement metrics (Revenue, EBITDA, Net Income, Interest Expense), and cash flow statement data (Operating Cash Flow, Free Cash Flow). Calculated financial ratios include Debt-to-Equity, Debt-to-EBITDA, Interest Coverage, Return on Equity (ROE), and Return on Assets (ROA).
The analysis employs both cross-sectional and time-series approaches to examine debt levels, leverage ratios, debt servicing capabilities, trends over time, and the relationship between debt usage and financial performance. Companies were categorized by size based on total assets: Small (under $5B), Medium ($5B–$20B), and Large (over $20B).
Health score
Metric Selection and Rationale
The score is based on three key metrics, each chosen for its ability to capture a different aspect of debt health:
- Debt-to-Assets Ratio: Measures what proportion of a company’s assets are financed by debt. Lower values indicate a more conservative capital structure.
- Debt-to-Equity Ratio: Shows how much debt a company has relative to its equity. Again, lower values are better, as they indicate less reliance on debt.
- Free Cash Flow to Debt (FCF/Debt): Indicates how easily a company can cover its debt with the cash it generates. Higher values are better, as they show stronger debt-servicing ability.
Normalization and Scoring
To make the metrics comparable and to ensure that the score is not skewed by outliers or differences in scale, we use percentile ranks:
- For each metric, we calculate the percentile rank of each company among all companies in the dataset.
- For Debt-to-Assets and Debt-to-Equity, the percentile is reversed (100 minus the percentile) so that lower ratios (better debt health) get higher scores.
- For FCF/Debt, the percentile is used as-is, since higher values are better.
- This results in each metric being scored from 0 (worst) to 100 (best) for each company.
Composite Score Construction
We combine the three metric scores into a single composite “Debt Health Score” for each company:
- The weights are:
- 40% Debt-to-Assets Score
- 40% Debt-to-Equity Score
- 20% FCF/Debt Score
This weighting gives slightly more importance to leverage ratios, while still rewarding companies that generate strong cash flow relative to their debt.
Categorization
To make the results more interpretable, each company’s composite score is mapped to a qualitative category:
- Excellent: Score ≥ 80
- Good: 60 ≤ Score < 80
- Fair: 40 ≤ Score < 60
- Poor: 20 ≤ Score < 40
- Very Poor: Score < 20
