Is Australian Vintage (ASX:AVG) Using Too Much Debt?

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. Importantly, Australian Vintage Ltd (ASX:AVG) does carry debt. But the more important question is: how much risk is that debt creating?

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What Risk Does Debt Bring?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. The first step when considering a company's debt levels is to consider its cash and debt together.

What Is Australian Vintage's Debt?

You can click the graphic below for the historical numbers, but it shows that as of June 2025 Australian Vintage had AU$84.0m of debt, an increase on AU$62.5m, over one year. However, it also had AU$8.88m in cash, and so its net debt is AU$75.1m.

A Look At Australian Vintage's Liabilities

We can see from the most recent balance sheet that Australian Vintage had liabilities of AU$97.9m falling due within a year, and liabilities of AU$142.5m due beyond that. On the other hand, it had cash of AU$8.88m and AU$52.4m worth of receivables due within a year. So it has liabilities totalling AU$179.1m more than its cash and near-term receivables, combined.

This deficit casts a shadow over the AU$39.5m company, like a colossus towering over mere mortals. So we'd watch its balance sheet closely, without a doubt. After all, Australian Vintage 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 ultimately the future profitability of the business will decide if Australian Vintage can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

View our latest analysis for Australian Vintage

Over 12 months, Australian Vintage saw its revenue hold pretty steady, and it did not report positive earnings before interest and tax. While that hardly impresses, its not too bad either.

Caveat Emptor

Over the last twelve months Australian Vintage produced an earnings before interest and tax (EBIT) loss. Indeed, it lost a very considerable AU$4.3m at the EBIT level. Combining this information with the significant liabilities we already touched on makes us very hesitant about this stock, to say the least. Of course, it may be able to improve its situation with a bit of luck and good execution. But we think that is unlikely, given it is low on liquid assets, and burned through AU$15m in the last year. So we think this stock is risky, like walking through a dirty dog park with a mask on. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. To that end, you should be aware of the 2 warning signs we've spotted with Australian Vintage .

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.