Yahoo Finance Is Dolphin Entertainment (NASDAQ:DLPN) Weighed On By Its Debt Load?
Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. We note that Dolphin Entertainment, Inc. (NASDAQ:DLPN) does have debt on its balance sheet. But should shareholders be worried about its use of debt?
What Risk Does Debt Bring?
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. 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. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.
See our latest analysis for Dolphin Entertainment
How Much Debt Does Dolphin Entertainment Carry?
As you can see below, Dolphin Entertainment had US$9.22m of debt, at September 2021, which is about the same as the year before. You can click the chart for greater detail. But on the other hand it also has US$12.7m in cash, leading to a US$3.44m net cash position.
How Healthy Is Dolphin Entertainment's Balance Sheet?
According to the last reported balance sheet, Dolphin Entertainment had liabilities of US$15.4m due within 12 months, and liabilities of US$15.2m due beyond 12 months. Offsetting these obligations, it had cash of US$12.7m as well as receivables valued at US$6.23m due within 12 months. So it has liabilities totalling US$11.7m more than its cash and near-term receivables, combined.
Of course, Dolphin Entertainment has a market capitalization of US$64.6m, so these liabilities are probably manageable. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. While it does have liabilities worth noting, Dolphin Entertainment also has more cash than debt, so we're pretty confident it can manage its debt safely. 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 Dolphin Entertainment 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.
Over 12 months, Dolphin Entertainment reported revenue of US$32m, which is a gain of 34%, although it did not report any earnings before interest and tax. Shareholders probably have their fingers crossed that it can grow its way to profits.
So How Risky Is Dolphin Entertainment?
By their very nature companies that are losing money are more risky than those with a long history of profitability. And we do note that Dolphin Entertainment had an earnings before interest and tax (EBIT) loss, over the last year. And over the same period it saw negative free cash outflow of US$444k and booked a US$4.7m accounting loss. With only US$3.44m on the balance sheet, it would appear that its going to need to raise capital again soon. Dolphin Entertainment's revenue growth shone bright over the last year, so it may well be in a position to turn a profit in due course. Pre-profit companies are often risky, but they can also offer great rewards. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. Case in point: We've spotted 3 warning signs for Dolphin Entertainment you should be aware of.
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.
