Is Agency Group Australia (ASX:AU1) Using Debt Sensibly?

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.' 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 The Agency Group Australia Limited (ASX:AU1) does have debt on its balance sheet. But is this debt a concern to shareholders?

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What Risk Does Debt Bring?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.

How Much Debt Does Agency Group Australia Carry?

You can click the graphic below for the historical numbers, but it shows that Agency Group Australia had AU$8.40m of debt in June 2025, down from AU$11.7m, one year before. However, it does have AU$5.07m in cash offsetting this, leading to net debt of about AU$3.34m.

How Healthy Is Agency Group Australia's Balance Sheet?

We can see from the most recent balance sheet that Agency Group Australia had liabilities of AU$38.9m falling due within a year, and liabilities of AU$6.91m due beyond that. Offsetting these obligations, it had cash of AU$5.07m as well as receivables valued at AU$13.6m due within 12 months. So its liabilities total AU$27.2m more than the combination of its cash and short-term receivables.

This deficit casts a shadow over the AU$10.1m company, like a colossus towering over mere mortals. So we'd watch its balance sheet closely, without a doubt. At the end of the day, Agency Group Australia would probably need a major re-capitalization if its creditors were to demand repayment. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since Agency Group Australia 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 Agency Group Australia

In the last year Agency Group Australia wasn't profitable at an EBIT level, but managed to grow its revenue by 12%, to AU$99m. We usually like to see faster growth from unprofitable companies, but each to their own.

Caveat Emptor

Over the last twelve months Agency Group Australia produced an earnings before interest and tax (EBIT) loss. Indeed, it lost a very considerable AU$3.5m at the EBIT level. If you consider the significant liabilities mentioned above, we are extremely wary of this investment. Of course, it may be able to improve its situation with a bit of luck and good execution. But we think that is unlikely since it is low on liquid assets, and made a loss of AU$5.4m in the last year. So while it's not wise to assume the company will fail, we do think it's risky. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. To that end, you should learn about the 3 warning signs we've spotted with Agency Group Australia (including 2 which make us uncomfortable) .

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.