Aveng (JSE:AEG) Has Debt But No Earnings; Should You Worry?

Explore Aveng's Fair Values from the Community and select yours

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' 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. We note that Aveng Limited (JSE:AEG) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

We've found 21 US stocks that are forecast to pay a dividend yield of over 6% next year. See the full list for free.

Why Does Debt Bring Risk?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. 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 think about a company's use of debt, we first look at cash and debt together.

What Is Aveng's Debt?

As you can see below, at the end of June 2025, Aveng had AU$55.9m of debt, up from AU$7.69m a year ago. Click the image for more detail. But on the other hand it also has AU$267.3m in cash, leading to a AU$211.4m net cash position.

A Look At Aveng's Liabilities

According to the last reported balance sheet, Aveng had liabilities of AU$700.8m due within 12 months, and liabilities of AU$141.7m due beyond 12 months. Offsetting these obligations, it had cash of AU$267.3m as well as receivables valued at AU$369.2m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by AU$205.9m.

This deficit casts a shadow over the AU$57.5m company, like a colossus towering over mere mortals. So we'd watch its balance sheet closely, without a doubt. After all, Aveng would likely require a major re-capitalisation if it had to pay its creditors today. Aveng boasts net cash, so it's fair to say it does not have a heavy debt load, even if it does have very significant liabilities, in total. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since Aveng will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Check out our latest analysis for Aveng

Over 12 months, Aveng made a loss at the EBIT level, and saw its revenue drop to AU$2.6b, which is a fall of 14%. That's not what we would hope to see.

So How Risky Is Aveng?

While Aveng lost money on an earnings before interest and tax (EBIT) level, it actually generated positive free cash flow AU$50m. So taking that on face value, and considering the net cash situation, we don't think that the stock is too risky in the near term. We're not impressed by its revenue growth, so until we see some positive sustainable EBIT, we consider the stock to be high risk. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. These risks can be hard to spot. Every company has them, and we've spotted 3 warning signs for Aveng (of which 1 shouldn't be ignored!) you should know about.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.