Is AVADA Group (ASX:AVD) Using Too Much Debt?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. We note that AVADA Group Limited (ASX:AVD) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

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Why Does Debt Bring Risk?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. If things get really bad, the lenders can take control of the business. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we examine debt levels, we first consider both cash and debt levels, together.

What Is AVADA Group's Debt?

You can click the graphic below for the historical numbers, but it shows that AVADA Group had AU$35.3m of debt in June 2025, down from AU$41.4m, one year before. However, it also had AU$7.33m in cash, and so its net debt is AU$27.9m.

A Look At AVADA Group's Liabilities

The latest balance sheet data shows that AVADA Group had liabilities of AU$34.1m due within a year, and liabilities of AU$34.6m falling due after that. Offsetting these obligations, it had cash of AU$7.33m as well as receivables valued at AU$30.1m due within 12 months. So its liabilities total AU$31.3m more than the combination of its cash and short-term receivables.

This deficit casts a shadow over the AU$14.4m company, like a colossus towering over mere mortals. So we'd watch its balance sheet closely, without a doubt. After all, AVADA Group would likely require a major re-capitalisation if it had to pay its creditors today. There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since AVADA Group will need earnings to service that debt. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

Check out our latest analysis for AVADA Group

In the last year AVADA Group had a loss before interest and tax, and actually shrunk its revenue by 11%, to AU$183m. That's not what we would hope to see.

Caveat Emptor

While AVADA Group's falling revenue is about as heartwarming as a wet blanket, arguably its earnings before interest and tax (EBIT) loss is even less appealing. To be specific the EBIT loss came in at AU$189k. Considering that alongside the liabilities mentioned above make us nervous about the company. It would need to improve its operations quickly for us to be interested in it. For example, we would not want to see a repeat of last year's loss of AU$16m. In the meantime, we consider the stock to be risky. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. For example AVADA Group has 3 warning signs (and 2 which don't sit too well with us) we think you should know about.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.