Results of a new study by the Kaplan Group reveal that SaaS companies are on much sounder financial footing than they were only a few years ago. The Kaplan Group analyzed SEC filings from 46 SaaS firms between 2022 and 2025.
The total debt of these 46 companies declined by 13.4% in 2025. With it comes increased profitability, as the median ROE went from -11% in 2022 to 7% in 2024. Overall, the companies are more selective in taking on debt; they borrow less and keep their finances safer.
The Kaplan Group said the median debt-to-asset ratio is a strong indicator of how much leverage a SaaS firm deploys. At 16.8% in 2022, it has shrunk to 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,” the report states.
Median debt-to-equity ratios are also plummeting, from 32.8% in 2022 to 5.2% this year. This indicates that companies are relying less on debt compared to their equity, yet another move away from leverage.
The good news continues, as profitability is also better. While ROE was negative in 2022 and 2023, it has turned and remained positive, meaning shareholders are realizing value.
The Kaplan Group also considered the debt health score, a measure that evaluates each SaaS company’s ability to effectively manage debt. It blends debt-to-assets, debt-to-equity, and free cash flow to debt into a score between one and 100, with the higher score the better. Companies are deemed Excellent (80+), Good (60-79), Fair (40-59), Poor (20-39), or Very Poor (below 20).
Top performers include DSGX (91.6), ZM (90.3), and VEEV (87.7), while the Kaplan Group said 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 five companies achieve ‘Excellent’ scores, while 18 companies fall into ‘Poor’ or ‘Very Poor’ categories,” the report states. “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 $100 million in debt but $50 million in annual free cash flow is in a much stronger position than one with $50 million in debt but only $5 million in free cash flow.”