Breaking Down Saratoga Investment Corp. (SAR) Financial Health: Key Insights for Investors

You're looking at Saratoga Investment Corp. (SAR) because you need a clear picture of its financial durability, especially as interest rate trends and M&A activity keep shifting the landscape, and honestly, the headline numbers can be confusing. The core takeaway from the fiscal year 2025 data, which ended February 28, 2025, is a story of strong asset growth but a dip in quarterly income that bears watching. Specifically, the company's Net Asset Value (NAV) grew by a solid $22.5 million year-over-year to reach $392.7 million, a defintely positive sign of portfolio health and value creation. Still, the full-year Adjusted Net Investment Income (NII) per share was $3.81, a drop from the prior year, primarily due to lower short-term rates impacting their floating-rate assets and outsized repayments. The good news for income-focused investors is the declared Fiscal Year 2025 dividends totaled $3.31 per share, and just this November 2025, a special dividend of $0.25 per share was declared to clear final 2025 spillover income, bringing the total December distribution to $0.50 per share. We need to dig into how Saratoga Investment Corp. plans to deploy its substantial $292.2 million in cash and undrawn capacity to capitalize on the early signs of a lower middle market M&A pickup, all while keeping that low non-accrual rate of 0.3% of fair value intact.

Revenue Analysis

You need to know where the money is coming from, and for Saratoga Investment Corp. (SAR), the story is one of stable, albeit slowing, top-line growth driven by its debt portfolio. For the fiscal year ending February 28, 2025, Saratoga Investment Corp. reported total investment income-which is their equivalent of revenue-of nearly $148.9 million. That's a decent 3.6% increase year-over-year, but the near-term trend shows some headwinds you defintely need to watch.

As a Business Development Company (BDC), Saratoga Investment Corp.'s revenue structure is straightforward: it's essentially a lending business. The primary revenue source is interest income from its debt investments in middle-market companies. This is where the vast majority of that $148.9 million comes from, plus some fee income and returns from other structured assets.

Here's the quick look at the core components of their revenue generation:

• Interest Income: The lion's share, generated from first and second lien loans to private companies.
• Fee Income: Non-recurring revenue from loan originations, prepayments, and structuring transactions.
• CLO/JV Income: Income from its Collateralized Loan Obligation (CLO) investments and its joint venture (JV) equity stake.

The company's portfolio is built on floating-rate assets, so when base interest rates were rising, revenue saw a significant boost, jumping 45.02% in fiscal year 2024. The 3.6% growth in fiscal year 2025 signals a return to a more normalized environment, but it also reflects the impact of lower Assets Under Management (AUM) and recent loan repayments.

We saw a clear shift in the back half of the 2025 fiscal year. Total investment income for the final quarter (Q4 2025) dropped to $31.3 million, a 15.9% decrease from the same quarter last year. This is a direct consequence of lower short-term interest rates and a high volume of repayments that reduced the overall size of the investment base. Repayments totaled $312.1 million for the year, significantly outpacing originations of $168.1 million. That's a lot of capital flowing out. You can review the strategic direction that guides these decisions in their Mission Statement, Vision, & Core Values of Saratoga Investment Corp. (SAR).

To put the recent trend in context, here is the year-over-year revenue growth history:

What this table tells us is that the massive revenue acceleration from 2023 to 2024 is now behind us, and management is navigating a period of capital deployment challenges. The opportunity now lies in how effectively they can redeploy the substantial cash and undrawn capacity they've accumulated into new, accretive investments in the current rate environment.

Profitability Metrics

You're looking for a clear picture of Saratoga Investment Corp. (SAR)'s earning power, and the data from the fiscal year ended February 28, 2025, shows a company that is maintaining its profitability, but with a few shifting dynamics under the hood. The direct takeaway is that while top-line revenue grew, the core Net Investment Income (NII) margin saw a slight compression, a trend common in the Business Development Company (BDC) space as short-term rates moderated.

For a BDC, the concepts of gross profit and operating profit are best viewed through the lens of Total Investment Income and Net Investment Income (NII). Think of Total Investment Income as your revenue-the interest, dividends, and fees generated from the loan portfolio. For fiscal year 2025, Saratoga Investment Corp. posted $148.9 million in Total Investment Income, a solid 3.6% increase from the prior year. The NII, which is essentially the operating profit before non-cash items and capital gains/losses, came in at an adjusted $53.0 million. Here's the quick math on the core margins:

• Operating Profit Margin (Adjusted NII Margin): Approximately 35.6% (Calculated as $53.0M NII / $148.9M Revenue).
• Net Profit Margin (GAAP Net Income Margin): Approximately 18.9% (Calculated as $28.1M Net Income / $148.9M Revenue).

The Net Income of approximately $28.1 million (based on $2.02 Earnings per Share and 13.91 million average shares outstanding) gives you the final, bottom-line profitability after all expenses and realized/unrealized gains/losses.

Trends and Operational Efficiency

The profitability trend shows a slight dip in the NII yield, which is the return on average net asset value. For the full fiscal year 2025, the NII Yield was 14.1%, a modest decline from 14.6% in the prior year. This downtrend is defintely a result of two factors: the recent trend of decreasing short-term interest rates impacting the company's largely floating-rate assets, and a lower level of assets under management (AUM) due to significant repayments. Still, the company's operational efficiency, specifically cost management, remains relatively tight.

Here's a look at the operational cost trend:

While the Total Investment Income grew by 3.6%, the core Operating Expenses (excluding interest, management, and incentive fees) increased by $0.8 million to $9.3 million. This 8.1% jump in administrative costs is something to watch, as it outpaced the revenue growth, contributing to the slight compression in the NII margin. The key is that the management team is effectively controlling the costs they can, but the external rate environment and portfolio size are the bigger drivers of the NII yield.

Outperforming the BDC Industry

When you stack Saratoga Investment Corp. against its peers in the BDC industry, its performance metrics are strong, which suggests superior underwriting and credit quality. The company's long-term average Return on Equity (ROE) over the past 11 years is 10.1%, which is well above the BDC industry average of 7.0%. This is a great sign of effective capital utilization. Plus, the credit quality is a major differentiator:

• Non-Accrual Rate: SAR's non-accrual rate (investments not generating income) is exceptionally low at just 0.3% of cost.
• Industry Average Non-Accrual Rate: The BDC industry average is much higher, sitting at 3.4%.

The gap here shows that Saratoga Investment Corp. is better at picking and managing its loans, which fundamentally protects future profitability. The market also sees value, as the company's 2025 forward Price/Earnings ratio of 7.65X is cheaper than the BDC industry average of 9.17X. This suggests the stock is currently undervalued relative to its peers, given its superior profitability and credit quality metrics. You can read more about the company's long-term strategy in their Mission Statement, Vision, & Core Values of Saratoga Investment Corp. (SAR).

Debt vs. Equity Structure

You're looking at Saratoga Investment Corp. (SAR)'s balance sheet, and the first thing to understand is that as a Business Development Company (BDC), debt is a core part of its model. The direct takeaway is that Saratoga Investment Corp. (SAR) operates with a significantly higher debt-to-equity ratio than the BDC industry average, a strategy that amplifies returns but also increases risk.

For the fiscal year 2025, which ended on February 28, 2025, Saratoga Investment Corp. (SAR) had a total approximate outstanding debt of around $793.9 million. This financing is a mix of revolving credit facilities, Small Business Administration (SBA) debentures, and various bond issuances. Here's the quick math on how that debt breaks down:

• Outstanding borrowings under credit facilities: $52.5 million. This is your short-term, flexible capital.
• SBA debentures (SBIC II and III licenses): $170.0 million. This is long-term, government-backed financing.
• Listed baby bonds and unsecured institutional bonds: $521.4 million. This forms the bulk of the long-term, fixed-rate debt.
• Other unlisted issuances: $52.0 million.

The company is defintely using its leverage capacity to drive returns, which is the whole point of the BDC structure.

Leverage and Industry Comparison

The key metric here is the regulatory debt-to-equity ratio, which for BDCs has a statutory limit of 2:1. As of the end of fiscal year 2025, Saratoga Investment Corp. (SAR)'s regulatory leverage stood at 1.63x. This is a high number, but it's still below the regulatory ceiling. To be fair, this aggressive leverage is a deliberate strategy; the company has openly stated that its high regulatory debt-to-equity ratio is part of what helps generate higher returns on equity.

Now, compare that to the BDC sector. The sector-wide average debt-to-equity ratio is currently around 1.19x. Saratoga Investment Corp. (SAR) is running a much hotter engine than its peers. This strategy means higher net investment income (NII) when things go well, but it also means less cushion if the economy turns or if portfolio company credit quality deteriorates. It's a risk-on approach.

Financing Strategy and Future Flexibility

Saratoga Investment Corp. (SAR) balances this debt load with a clear path for equity funding and staggered maturities. The company has an active at-the-market (ATM) equity distribution agreement, allowing it to sell up to $300.0 million of common stock over time. This is a crucial tool for managing the regulatory leverage ratio-issuing new equity increases the denominator, bringing the ratio down to maintain compliance or fund new investments.

On the debt side, the company is actively managing its long-term obligations. For example, the earliest maturity on its main credit facilities is the $65.0 million Encina facility, which is due in January 2026. Plus, in September 2025, S&P Global Ratings assigned new ratings to a debt issuance related to its CLO securitization, the Saratoga Investment Corp. Senior Loan Fund 2022-1, which is a key part of its funding mix. This shows ongoing, active management of its capital structure. For a deeper dive into the company's long-term philosophy, check out their Mission Statement, Vision, & Core Values of Saratoga Investment Corp. (SAR).

The bottom line is that Saratoga Investment Corp. (SAR) is a high-leverage BDC, so its success is highly dependent on its ability to maintain strong credit quality in its portfolio and keep its interest expense manageable. If onboarding takes 14+ days, churn risk rises.

Liquidity and Solvency

You need to know if Saratoga Investment Corp. (SAR) has enough short-term cash to cover its immediate obligations, and the answer is a clear yes, especially when you look at their cash position and total investment capacity. For a business development company (BDC) like Saratoga Investment Corp., traditional liquidity ratios are less meaningful than the sheer size of their cash hoard and undrawn credit lines, which are substantial.

As of the close of the 2025 fiscal year (February 28, 2025), Saratoga Investment Corp. reported a significant cash and cash equivalents balance of approximately $204.7 million. This is the most liquid portion of their current assets. What this cash position hides is the full picture of their deployable capital, which includes undrawn credit facilities and Small Business Administration (SBA) debentures.

• Saratoga Investment Corp.'s total undrawn borrowing capacity and cash was approximately $428.2 million at the end of fiscal year 2025.
• This massive liquidity pool gives them the flexibility to cover short-term liabilities and also fund new investments without having to raise external capital immediately.

Current and Quick Ratios (Liquidity Positions)

While BDCs don't always report a high current ratio (Current Assets / Current Liabilities) because their largest asset-the investment portfolio-is long-term, their liquidity is robust. The goal is not a high ratio but having ample cash to manage operations and fund commitments. The strong cash balance of $204.7 million acts as the primary defense against any immediate liquidity concerns. Think of this cash plus the undrawn credit as their true Quick Ratio (quick assets divided by current liabilities) proxy-it's a massive buffer.

The company's long-term debt to equity ratio was around 202.25% for the fiscal year 2025, which is a key solvency metric for a leveraged BDC, and one you defintely need to keep an eye on. This level of leverage is managed by their floating-rate asset base, which generates higher income when interest rates rise, helping to cover the cost of their largely fixed-rate long-term liabilities.

Analysis of Working Capital and Cash Flow Trends

The trend in working capital is best viewed through the lens of cash flow generation. For the full fiscal year 2025, Saratoga Investment Corp. generated a very strong positive cash flow from operations of approximately $197.54 million. This is the most important number here. A high operating cash flow means the core business is generating more than enough cash to sustain itself, reducing reliance on external financing for day-to-day needs.

Here's the quick math on their cash movements for FY 2025 (in millions):

The fact that principal repayments ($312.1 million) significantly outpaced new originations ($168.1 million) in FY 2025 is the reason for the large cash inflow from the investment side. This cash was then used to pay dividends ($40.75 million in common dividends) and reduce debt, which is a healthy cycle. The company is not burning cash; it's accumulating it and returning it to shareholders.

The ability to generate $197.54 million in operating cash flow while simultaneously reducing net debt shows a highly disciplined approach to capital management, which is a major strength. Any potential liquidity concern is mitigated by the massive undrawn capacity and the high percentage of first lien debt (senior secured first lien debt) in their portfolio, which is less risky. If you're looking for a deeper dive into who is investing in this structure, you should check out Exploring Saratoga Investment Corp. (SAR) Investor Profile: Who's Buying and Why?

Valuation Analysis

You're looking at Saratoga Investment Corp. (SAR) and wondering if the market has it right. My take is that, while the stock looks undervalued on a book value basis, its high dividend payout ratio (payout ratio) signals a need for caution. The core takeaway is this: SAR is priced for income, but its valuation metrics suggest a tightrope walk between a discounted asset base and a potentially unsustainable dividend.

As of November 2025, the stock is trading around the $22.16 mark. Over the last 12 months, the price has been volatile, dropping about 12.89% from its 52-week high of $26.49 set back in November 2024, but it's still above its 52-week low of $21.10. The recent price action is a clear signal that the market is grappling with the company's earnings power against its substantial dividend yield.

Is Saratoga Investment Corp. (SAR) Overvalued or Undervalued?

When we look at the core valuation multiples for the 2025 fiscal year, Saratoga Investment Corp. presents a mixed picture. The Price-to-Book (P/B) ratio of 0.86 is the most compelling argument for it being undervalued. Here's the quick math: you are essentially buying $1.00 of book value (assets minus liabilities) for just $0.86. That's a discount, and for a Business Development Company (BDC), trading below book value can often flag an opportunity.

But the Price-to-Earnings (P/E) ratio tells a different story. The trailing P/E is 9.45, which is relatively low, but the Enterprise Value-to-EBITDA (EV/EBITDA) ratio is a massive 31.1x as of February 2025. This high EV/EBITDA suggests that while earnings (the 'E' in P/E) look cheap, the company's overall enterprise value (market cap plus debt minus cash) is quite high relative to its core operating cash flow proxy (EBITDA). It's a disconnect you defintely need to investigate further.

Dividend Sustainability and Analyst View

The main draw for Saratoga Investment Corp. is its dividend. The annual dividend rate is $3.00 per share, which translates to a generous yield of about 13.54%. That's a phenomenal yield, but you have to check the engine. The trailing dividend payout ratio is a high 135.92%. A payout ratio over 100% means the company is paying out more in dividends than it is earning, which is simply not sustainable long-term without drawing down capital or taking on debt. It's a red flag for future dividend cuts, even for a BDC.

The Street is cautious, too. Analyst consensus as of November 2025 is a 'Reduce' or 'Hold'. Out of the six analysts covering the stock, there is one 'Sell' and five 'Hold' ratings. The average 12-month price target is $23.63, suggesting a modest upside of about 6.68% from the current trading price. They are not bullish, but they aren't calling for a collapse either. They are saying: hold your position, but don't expect a big run.

• Monitor the dividend payout ratio closely.
• Don't confuse a high yield with a safe yield.
• Watch for any change in the analyst consensus.

If you want to dig deeper into who is actually holding the stock and why, you should be Exploring Saratoga Investment Corp. (SAR) Investor Profile: Who's Buying and Why?

Risk Factors

You're looking at Saratoga Investment Corp. (SAR), a Business Development Company (BDC), and wondering what could derail its solid performance. Honestly, the biggest risks for SAR aren't unique to the company; they're the same macroeconomic headwinds facing the entire middle-market lending space.

The core challenge is the external environment. SAR's portfolio companies are not immune to the broader economic slowdown. We're still dealing with elevated inflation and the impact of interest rate volatility. Since SAR's assets are largely floating-rate, they benefited greatly from rising rates, but the recent downtrend in rates has started to compress yields. For example, the total investment income for the fiscal fourth quarter of 2025 was $31.3 million, a noticeable decrease of 15.9% compared to the same quarter last year, which the company attributed partly to base rate decreases and lower Assets Under Management (AUM). That's the reality of a BDC's revenue stream.

• Economic Downturn: A recession hits portfolio company performance and valuation.
• Rate Volatility: Changes in the interest rate environment directly impact investment income.
• Inflation/Supply Chain: Elevated costs and labor shortages squeeze middle-market margins.

On the internal and operational side, credit risk is always the elephant in the room for any lender. The good news is that SAR has kept a tight leash on this. As of the end of fiscal year 2025, non-accruals-loans where interest payments are significantly past due-were only 0.3% of the portfolio's fair value. That's a strong underwriting performance. Still, you have to watch portfolio valuation closely. In the fourth quarter of fiscal 2025, the company reported a $7.6 million decrease in fair value from net realized gains and unrealized depreciation, with $3.4 million of that coming from net unrealized depreciation in the core non-CLO book, hitting specific names like Pepper Palace and Zollege.

Here's a quick look at key financial and strategic risks and how Saratoga Investment Corp. is managing them:

The company's small size is also a factor. With a market capitalization of around $364 million, Saratoga Investment Corp. is one of the smallest BDCs, which can sometimes translate to less trading liquidity than its larger peers. To be fair, they are actively managing their capital structure; they just secured a new credit facility with Valley National Bank for up to $85.0 million in November 2025, replacing the older Encina facility. That's a smart move to optimize their funding costs and capacity. Ultimately, their conservative portfolio composition-heavily weighted toward first-lien debt-and their ability to over-earn the dividend are the primary cushions against these near-term risks. You can get a deeper dive into these numbers in the full post: Breaking Down Saratoga Investment Corp. (SAR) Financial Health: Key Insights for Investors.

Growth Opportunities

You want to know where Saratoga Investment Corp. (SAR) goes from here, and that's the right question. A Business Development Company (BDC) like SAR has to constantly prove its ability to source new, quality deals and manage its capital structure. The good news is the company has a clear path for growth, anchored by a strong liquidity position and a portfolio that has shown resilience.

The primary growth driver is simply deploying capital into new, high-quality middle-market companies. For the fiscal year ending February 28, 2025, Saratoga Investment Corp. reported total investment income of $148.86 million, a solid 3.6% increase from the prior year, proving their income engine is running. This growth is set to continue, largely because they have the dry powder-the cash and available credit-to execute new deals.

Here's the quick math on their strategic capacity:

• Total Investment Capacity: Saratoga Investment Corp. has a substantial $428.2 million in undrawn borrowing capacity.
• SBIC License Advantage: This includes $136.0 million available from their SBIC III license, which is a powerful, low-cost funding source for new investments.
• Credit Quality: Non-accruals (loans not generating interest) were impressively reduced to just 0.3% of fair value in fiscal 2025, which gives management confidence to expand.

This war chest is the engine for future revenue growth, especially as they focus on new platform investments-they made three new platform investments and 35 follow-on investments in fiscal 2025, totaling $168.1 million in originations. The goal is to expand the asset base without sacrificing credit quality. To be fair, a drop in base interest rates could pressure their yield, but it would also make the borrowing environment more attractive, potentially leading to an influx of new, quality borrowers for them to finance.

Competitive Edge and Earnings Estimates

Saratoga Investment Corp. is defintely positioned well against its peers, primarily through its superior underwriting and capital structure. They have consistently outperformed the BDC sector in total return and Return on Equity (ROE), which stood at 7.5% for the 2025 fiscal year. This isn't luck; it's a structural advantage, as their portfolio is heavily weighted toward first-lien debt-about 86.3% as of May 31, 2024-which offers better stability and security.

For the fiscal year 2025, the company delivered adjusted Net Investment Income (NII) of $3.81 per share, up 2.1% year-over-year. This strong performance, combined with a trailing 12-month dividend yield of 12.9% as of July 2025, makes them a standout income play. They also switched from a quarterly to a monthly distribution cadence, which is a smart move to attract and retain income-focused investors. You can learn more about who is investing in this strategy by reading Exploring Saratoga Investment Corp. (SAR) Investor Profile: Who's Buying and Why?

Looking ahead, consensus analyst estimates for the current fiscal year (FY2026) revenue are around $129.4 million, with an EPS estimate of $2.58 for the full year. While recent quarterly results have lagged those estimates, the core strategy remains sound: leverage their experienced team and low-cost SBIC capital to make smart, senior-secured loans. The table below summarizes the core financial health metrics from their most recent full fiscal year.

The key action for you is to monitor their deployment pace in the coming quarters. If they can put that $428.2 million of capacity to work in high-quality loans, the NII and dividend growth should follow.