Health Check: How Prudently Does Aveng (JSE:AEG) Use Debt?

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says '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. We can see that Aveng Limited (JSE:AEG) does use debt in its business. But the real question is whether this debt is making the company risky.

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When Is Debt A Problem?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. 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.

How Much Debt Does Aveng Carry?

You can click the graphic below for the historical numbers, but it shows that as of June 2025 Aveng had AU$22.6m of debt, an increase on AU$7.69m, over one year. But it also has AU$267.3m in cash to offset that, meaning it has AU$244.7m net cash.

How Healthy Is Aveng's Balance Sheet?

We can see from the most recent balance sheet that Aveng had liabilities of AU$700.8m falling due within a year, and liabilities of AU$141.7m due beyond that. Offsetting this, it had AU$267.3m in cash and AU$364.7m in receivables that were due within 12 months. So it has liabilities totalling AU$210.4m more than its cash and near-term receivables, combined.

The deficiency here weighs heavily on the AU$56.5m company itself, as if a child were struggling under the weight of an enormous back-pack full of books, his sports gear, and a trumpet. So we definitely think shareholders need to watch this one closely. 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. There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since Aveng 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 Aveng

In the last year Aveng had a loss before interest and tax, and actually shrunk its revenue by 14%, to AU$2.6b. We would much prefer see growth.

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 although it is loss-making, it doesn't seem to have too much near-term balance sheet risk, keeping in mind the net cash. We're not impressed by its revenue growth, so until we see some positive sustainable EBIT, we consider the stock to be high risk. 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. Be aware that Aveng is showing 2 warning signs in our investment analysis , and 1 of those makes us a bit uncomfortable...

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.