Breaking Down Oxford Square Capital Corp. (OXSQ) Financial Health: Key Insights for Investors

You're looking at Oxford Square Capital Corp. (a Business Development Company, or BDC) and seeing that eye-popping dividend yield, which currently sits around a massive 22.58%, and you're defintely wondering if it's a sustainable income play or a trap. The reality, as always, is complex, especially after the latest Q3 2025 earnings call on November 4, 2025. We saw the Net Asset Value (NAV) per share drop from $2.06 to $1.95 in a single quarter, a clear signal of unrealized depreciation that totaled approximately $7.5 million. Still, the company reported Net Investment Income (NII) of $5.6 million, or $0.07 per share, and authorized a significant $25 million share repurchase program, which suggests management sees the stock as undervalued compared to the analyst price target of $2.00. So, how do you reconcile a near-record yield with a negative Return on Equity (ROE) of -1.61% and a shrinking NAV? That's the core question for this $147.5 million market cap BDC.

Revenue Analysis

You're looking at Oxford Square Capital Corp. (OXSQ) and wondering where the money actually comes from, which is the right question for any Business Development Company (BDC). The direct takeaway is that OXSQ's revenue, or Total Investment Income, is highly concentrated in two areas: interest from corporate debt and distributions from Collateralized Loan Obligation (CLO) equity. This concentration is a double-edged sword, offering high yield but also exposing it to credit market volatility.

For the nine months ended September 30, 2025, Oxford Square Capital Corp. reported total revenue of $29.92 million. That's the top-line number, but the real story is in the mix. As a BDC, OXSQ's revenue is not from selling a product but from its investment portfolio, which is structured to generate current income.

Understanding Oxford Square Capital Corp.'s Primary Revenue Streams

OXSQ's business model revolves around generating income from its investments, which are primarily structured finance and corporate debt. The portfolio allocation tells you exactly where the revenue is sourced. Honestly, this is a simple business model: they lend money and collect interest, or they own a slice of a debt pool and collect distributions.

• Secured Debt: This is the interest income from direct loans to companies, making up approximately 61% of the portfolio's fair value.
• CLO Equity: These are the residual cash flows from CLO investments, representing about 38% of the portfolio.
• Other Investments: A minor portion, around 1%, comes from other equity or investment types.

Here's the quick math on their recent performance: Total Investment Income for the third quarter of 2025 was $10.24 million, beating analyst expectations. This investment income is what drives their ability to pay distributions, which is defintely the main focus for BDC investors.

Near-Term Revenue Growth and Headwinds

Mapping the near-term risk and opportunity requires looking at the year-over-year (YoY) change. The trend is showing a slight contraction. Revenue for the nine months ended September 30, 2025, was $29.92 million, down from $32.46 million in the comparable period of 2024. That's a YoY decrease of about -7.82%. The full-year 2025 revenue is estimated to be around $39.77 million. Still, the sequential growth from Q2 2025's $9.52 million to Q3 2025's $10.24 million shows some positive momentum.

What this estimate hides is the change in yield. For Q1 2025, the total investment income of $10.2 million was slightly lower than the $10.7 million from Q1 2024. This dip was primarily due to a drop in interest income from debt investments, as the weighted average yield on debt investments fell from 15.8% at year-end 2024 to 14.3% in Q1 2025. This is a clear headwind: lower yields on their debt portfolio directly translate to lower revenue, even if the portfolio size stays the same.

Segment Contribution and Key Changes

The core segments-Secured Debt and CLO Equity-are the only games in town for Oxford Square Capital Corp. You can see the revenue composition is directly tied to their investment strategy. The most significant change isn't a shift in the type of revenue, but the yield on that revenue. The drop in debt investment yield is a material change that impacts the overall revenue picture. The relative stability of the CLO equity effective yield, which was around 9.0% in Q1 2025, helps to offset some of the pressure from the debt side. To be fair, the company's long-term strategy is built on navigating these credit cycles, and you can read more about their philosophy here: Mission Statement, Vision, & Core Values of Oxford Square Capital Corp. (OXSQ).

Here's a snapshot of the quarterly revenue trend for 2025:

The action for you is to monitor the debt investment yield in the next quarter's report. If that 14.3% yield continues to drop, the revenue pressure will increase, even if they maintain a stable portfolio size.

Profitability Metrics

You need to know how efficiently Oxford Square Capital Corp. (OXSQ) is turning its investment income into actual profit. For a Business Development Company (BDC), the standard profitability metrics look a little different, but the core idea is the same: how much money is left after costs?

The headline for 2025 is a mixed bag: the company is generating solid investment income, but rising expenses and realized/unrealized losses are eating into the bottom line. For the third quarter of 2025 (Q3 2025), Total Investment Income-our proxy for revenue-was approximately $10.2 million, beating analyst estimates of $9.79 million. However, the Net Change in Net Assets from Operations, which is the final net profit/loss for a BDC, was a loss of approximately $2.1 million for the same quarter. That's a net loss margin of roughly -20.6%.

Gross, Operating, and Net Profit Margins

Because BDCs don't have a traditional Cost of Goods Sold, their Gross Profit Margin is essentially 100% of their Total Investment Income, which is typical for the sector. The real story is what happens below that line, especially with Net Investment Income (NII) and Net Profit.

Here is the quick math for the most recent quarter, Q3 2025:

• Gross Profit Margin: 100% (Total Investment Income of $10.2 million is the Gross Profit)
• Operating Profit Margin (NII Margin): 54.9% (NII of $5.6 million / Revenue of $10.2 million)
• Net Profit Margin: -20.6% (Net Loss of $2.1 million / Revenue of $10.2 million)

The NII margin is your best indicator of operational efficiency before you factor in the volatile realized and unrealized gains or losses on the portfolio. Honestly, a 54.9% NII Margin is decent, but the negative net profit shows that investment performance (losses) defintely outweighed income generation in Q3 2025.

Profitability Trends and Operational Efficiency

Looking at the near-term trend in 2025, we see a clear pattern of margin compression. While Total Investment Income was volatile-dipping from $10.2 million in Q1 2025 to $9.52 million in Q2 2025 before recovering to $10.2 million in Q3 2025-the Net Investment Income (NII) has been under pressure. NII dropped from $6.1 million in Q1 to $5.5 million in Q2, then only slightly recovered to $5.6 million in Q3.

This is a direct result of rising operational expenses. Total expenses jumped from an estimated $4.0 million in Q2 2025 to approximately $4.7 million in Q3 2025. This 17.5% quarter-over-quarter expense increase is a major headwind for operational efficiency. The expense ratio (Total Expenses / Revenue) climbed from about 42% to 46.1%, which is a significant structural drag on profitability.

Industry Comparison and Future Outlook

This struggle with margin compression is not unique to Oxford Square Capital Corp. (OXSQ). The broader Business Development Company (BDC) sector faced challenges in the first quarter of 2025 due to lower weighted average portfolio yields and limited investment growth. Industry-wide, higher interest expenses and tighter spreads are compressing Net Investment Income margins. Fitch Ratings even projected a deteriorating environment for BDCs in 2025, anticipating a rise in non-accruals and portfolio losses.

The company's full-year 2025 revenue is estimated at $39.77 million, with an estimated Earnings Per Share (EPS) of $0.306. This forecast suggests a full-year profitability that, while positive on an NII basis, remains constrained by the operating environment and portfolio performance. Investors need to watch the expense creep and the trend in Net Asset Value (NAV) per share, which decreased from $2.06 to $1.95 in Q3 2025 alone. If you want to dig deeper into the shareholder base, check out Exploring Oxford Square Capital Corp. (OXSQ) Investor Profile: Who's Buying and Why?

Debt vs. Equity Structure

You need to know how Oxford Square Capital Corp. (OXSQ) funds its investments, and the quick answer is they lean on a balanced mix, but they just made a big move to lock in long-term debt. As of the end of the second quarter of 2025, the company's total outstanding debt was $115.3 million, which was well-supported by total equity of $157.4 million. This is a story of proactive debt management in a high-rate environment.

The key metric here, the debt-to-equity ratio, stood at 0.73x as of June 30, 2025. For a Business Development Company (BDC), this is a moderate and relatively safe level of leverage. To give you context, the mean debt-to-equity ratio for publicly traded BDCs was around 0.95x in the first quarter of 2025. This means Oxford Square Capital Corp. was operating with less leverage than the industry average, which is a sign of financial stability and a good cushion to absorb potential portfolio losses.

The company's recent activity shows a clear strategy to extend its debt maturity profile. In the third quarter of 2025, Oxford Square Capital Corp. executed a significant refinancing, which is the most critical near-term action for investors to track:

• Issued $74.8 million of new 7.75% unsecured notes due July 2030.
• Fully repaid the remaining balance of $34.8 million of its higher-cost 6.25% unsecured notes due April 2026.

Here's the quick math: they replaced a near-term, smaller maturity with a larger, longer-term one, increasing their total long-term debt by about $40 million ($74.8M new minus $34.8M repaid). This locks in a fixed interest rate of 7.75% for five years, providing stability against future interest rate hikes, even if the coupon is higher now. They are definitely prioritizing duration over a slightly lower current cost.

The company balances this debt financing with equity funding through an At-The-Market (ATM) offering. In the third quarter of 2025, they issued approximately 5.4 million shares of common stock, bringing in net proceeds of about $11.8 million. This is a continuous way to raise capital at Net Asset Value (NAV) to fund new investments. Still, to be fair, the Board also authorized a $25 million share repurchase program in Q3 2025, which acts as a counter-balance to the ATM, showing management is ready to support the stock price if it trades at a deep discount. It's a calculated, dual-sided approach to capital management.

For more detailed analysis on the company's portfolio shift, you can check out the full post: Breaking Down Oxford Square Capital Corp. (OXSQ) Financial Health: Key Insights for Investors.

Liquidity and Solvency

You need to know if Oxford Square Capital Corp. (OXSQ) has the immediate cash power to meet its obligations, especially as a Business Development Company (BDC) that relies on consistent cash flow for distributions. The direct takeaway is that Oxford Square Capital Corp. shows an exceptionally strong technical liquidity position, but its core investment cash flow must consistently cover its distributions to avoid long-term solvency concerns.

Assessing Oxford Square Capital Corp.'s Liquidity Ratios

The company's short-term liquidity, as measured by its current and quick ratios, is technically robust. Both the current ratio and the quick ratio stand at a striking 12.29 as of the most recent reporting period. This metric, which compares current assets (like cash and receivables) to current liabilities (debts due within a year), suggests Oxford Square Capital Corp. has more than twelve times the liquid assets needed to cover its near-term debts. For a BDC, this high ratio often reflects a large amount of cash and short-term investments held as current assets, which is defintely a strong buffer.

• Current Ratio: 12.29 (Highly liquid position)
• Quick Ratio: 12.29 (No material inventory to exclude)
• Cash & Equivalents: Approximately $50.79 million as of September 30, 2025.

Working Capital Trends and Analysis

Working capital (Current Assets minus Current Liabilities) provides the dollar value of this buffer. As of the second quarter of 2025, the working capital was approximately $28.61 million, calculated from Current Assets of $32.08 million and Current Liabilities of $3.47 million. What this estimate hides is the nature of the assets; a BDC's investments are typically illiquid, but the high cash balance of $50.79 million provides a significant cushion. The trend here is stability in the short-term buffer, but the long-term health hinges on the quality of the investment portfolio, which is what actually generates the income to sustain the business.

Cash Flow Statements Overview

Analyzing the cash flow statement for the third quarter of 2025 reveals a mixed picture of cash generation and deployment. Net Investment Income (NII)-the core operating cash flow proxy for a BDC-was approximately $5.6 million for the quarter. This income, however, failed to fully cover the quarterly distribution of $0.105 per share, creating a structural distribution coverage deficit.

Here's the quick math on cash flow activity for Q3 2025:

Potential Liquidity Concerns or Strengths

The main strength is the high liquidity ratio and the recent financing activity. Oxford Square Capital Corp. successfully issued $74.8 million in new unsecured notes and raised $11.8 million in net proceeds from an equity offering in Q3 2025, significantly boosting its cash position and financial flexibility. However, the primary liquidity concern is the net decrease in net assets from operations of approximately $2.1 million in Q3 2025, driven by $7.5 million in net unrealized depreciation (a non-cash charge). This depreciation, coupled with the NII shortfall relative to distributions, signals that while the company has plenty of cash on hand now, the quality of its underlying investments (its long-term cash engine) is under pressure. You can review their core strategy in Mission Statement, Vision, & Core Values of Oxford Square Capital Corp. (OXSQ).

Valuation Analysis

Is Oxford Square Capital Corp. (OXSQ) overvalued or undervalued? Based on the key metrics for the 2025 fiscal year, Oxford Square Capital Corp. (OXSQ) appears to be trading near its book value, suggesting it is fairly valued to slightly undervalued on a Price-to-Book (P/B) basis, but the high dividend yield is a warning sign of underlying risk.

The market is clearly cautious. Over the last 12 months, the stock price has fallen by a significant 30.36%, trading recently around $1.89 to $1.95 per share. The 52-week high was $2.87, and the low was $1.56, showing substantial volatility. Analyst consensus reflects this uncertainty, landing on a mixed 'Hold' to 'Sell' rating, with an average price target of $1.75-a small downside from the current price. This suggests the street is defintely not expecting a quick rebound.

Here is the quick math on the core valuation multiples, which tell a more nuanced story than the stock chart alone:

The most telling figure for a Business Development Company (BDC) like Oxford Square Capital Corp. (OXSQ) is the P/B ratio of 0.98x. Trading below 1.0x means you are buying the company for less than the value of its underlying assets (Net Asset Value, or NAV). The NAV per share was $2.06 as of Q2 2025. This discount suggests investors are baking in expected losses or a continued deterioration of asset quality, which is crucial to understand. You can review the strategic priorities that drive this NAV in the Mission Statement, Vision, & Core Values of Oxford Square Capital Corp. (OXSQ).

Now, let's talk about that dividend. The yield is a massive 22.34%, which is highly attractive but also a major red flag. The dividend payout ratio is currently at 100% of TTM earnings, and historically, it has often been over 100%. This means the company is paying out everything it earns, or sometimes more, to maintain the dividend. This is not sustainable. If the net investment income (NII) cannot consistently cover the distribution, a dividend cut is a near-term risk, which would likely send the stock price lower. The high yield is a compensation for high risk.

The core issue is a lack of earnings cushion. The Q3 2025 earnings call highlighted that net investment income was struggling to cover the dividend, plus the company noted an increase in net unrealized and realized losses. So, while the P/B of 0.98x looks cheap, the dividend risk and the 30.36% stock price decline over the past year tell you the market is pricing in a significant future headwind.

Your next step is clear: Portfolio Manager: Model a scenario where the monthly dividend is cut by 25% and assess the stock's intrinsic value by the end of the year.

Risk Factors

You're looking at Oxford Square Capital Corp. (OXSQ) because the yield is attractive, but you need to see the full picture. Honestly, the biggest risk here isn't a single event, but a persistent trend of Net Asset Value (NAV) erosion that makes the high distribution yield defintely feel less secure. The company's core strategy-investing heavily in Collateralized Loan Obligation (CLO) equity-is the engine, but it also creates a unique set of internal and external risks we need to map to clear actions.

In the third quarter of 2025 alone, the NAV per share dropped from $2.06 to $1.95 as of September 30, 2025. This decline is not a fluke; it's a direct result of financial risks materializing in the portfolio, specifically a net unrealized depreciation of $7.5 million in Q3 2025. The market is also signaling concern, with one analyst rating the stock a Sell due to the lack of dividend growth prospects and expected continued deterioration of shareholder equity value.

Operational and Financial Headwinds

The operational and financial risks are clearly visible in the 2025 filings. The company's heavy concentration in CLO equity, which stood at $113.19 million or 71.2% of net assets as of September 30, 2025, means its performance is highly sensitive to the credit health of the underlying corporate loans. A modest increase in corporate default rates could severely impact the cash flows from these equity tranches, which sit at the bottom of the capital structure. Plus, the weighted average yield on their debt investments fell to 14.3% in Q1 2025, down from 15.8% at the end of 2024, signaling a lower return profile on new or refinanced debt assets.

Here's the quick math on recent losses: Q1 2025 saw net realized losses of approximately $12.2 million. This kind of loss realization, coupled with a net decrease in net assets from operations of approximately $2.1 million in Q3 2025, highlights the pressure on their income generation. We also know that preferred equity investments in one portfolio company, valued at approximately $3.9 million as of March 31, 2025, were placed on non-accrual status, which is a red flag for potential credit issues.

• NAV erosion is the primary internal risk.
• CLO equity concentration amplifies credit risk.
• Non-accrual investments signal portfolio stress.

External Market and Mitigation Strategies

The external risks are largely tied to the broader economic environment. As a Business Development Company (BDC), Oxford Square Capital Corp. is exposed to the risk of a potential recession or adverse economic environment, which could severely damage its interest income by increasing loan defaults across its portfolio. The negative revenue and profitability trends, coupled with a negative P/E ratio, highlight the substantial market-driven risks. You need to factor in the possibility of further distribution cuts, as the current payout has historically been barely sustainable.

To be fair, management is taking clear actions to address some of these financial pressures. They authorized a share repurchase program of up to $25 million until October 30, 2026, which can help support the stock price and NAV per share by reducing the share count. Furthermore, the company is actively managing its debt structure, having redeemed $24,790,750 in aggregate principal amount of its 6.25% Notes due 2026 in September 2025. This move is a smart step to optimize their debt profile. For a deeper dive into the company's long-term view, you can check out their Mission Statement, Vision, & Core Values of Oxford Square Capital Corp. (OXSQ).

The key takeaway is that while management is using the share buyback and debt management to stabilize the ship, the underlying challenge-the consistent decline in asset value driven by losses and depreciation-still needs a fundamental reversal in investment performance or a more favorable credit cycle. The risk is that the distribution yield is masking a slow decay of principal.

Growth Opportunities

You're looking for where Oxford Square Capital Corp. (OXSQ) can find real growth, and the short answer is that its future hinges on the performance of its Collateralized Loan Obligation (CLO) equity and debt portfolio, plus how effectively it manages its capital structure. The consensus analyst projection for full-year 2025 revenue is approximately $39.77 million, with an estimated Earnings Per Share (EPS) of $0.306. That's the baseline, but the path to exceeding it is all about portfolio management and smart capital moves.

Honestly, a Business Development Company (BDC) like Oxford Square Capital Corp. doesn't grow through product innovation in the traditional sense; its growth is driven by the yield spread-the difference between the interest it earns on its investments and the cost of its funding. The core growth driver is its specialized focus on corporate debt securities and CLO structured finance investments. This focus, which includes a diversified mix across sectors like technology, healthcare, and industrials, offers a competitive edge by targeting higher-yielding, complex assets. It's a niche that, when managed well, can generate significant net investment income (NII).

Here's the quick math on profitability for this year. The forecast for Net Investment Income (NII) per share for the 2025 fiscal year is set at approximately $0.32. This NII is the real measure of operating performance for a BDC, and while the Q3 2025 revenue of $10.24 million beat analyst estimates, the NII per share needs to consistently cover the monthly distribution of $0.035 to be defintely sustainable. The firm's long-term competitive advantage is its track record of maintaining consistent distributions, which is a major draw for income-focused investors, even if the Net Asset Value (NAV) per share has been under pressure, dropping to $1.95 as of September 30, 2025.

Strategic initiatives in 2025 show management is focused on enhancing shareholder value and securing future investment capital. These actions directly impact future growth by improving financial flexibility and potentially boosting the stock price.

• Share Repurchase Program: The Board authorized a share repurchase program of up to $25 million in Q3 2025, which can enhance EPS and NAV per share by reducing the share count.
• Unsecured Note Offering: The company priced $65 million in unsecured notes in Q2 2025. This capital is earmarked for new investments and debt repayment, providing the fuel for portfolio expansion.

What this estimate hides is the risk tied to the CLO market's health and the potential for loan defaults, which directly impacts the Net Asset Value (NAV). The long-term trend of NAV deterioration is a headwind we can't ignore. Still, the strategic deployment of the new capital from the note offering into high-quality debt and CLO tranches is the clearest path to future NII growth. You can dive deeper into the full financial picture by reading the full post here: Breaking Down Oxford Square Capital Corp. (OXSQ) Financial Health: Key Insights for Investors.

To summarize the financial projections, here is the near-term outlook based on recent analyst and company data:

Finance: Monitor the deployment of the $65 million note proceeds and the impact of the share repurchase on the NAV per share over the next two quarters.