Does Dolphin International Berhad (KLSE:DOLPHIN) Have A Healthy Balance Sheet?

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 International Berhad (KLSE:DOLPHIN) does have debt on its balance sheet. But is this debt a concern to shareholders?

When Is Debt A Problem?

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. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

Check out our latest analysis for Dolphin International Berhad

What Is Dolphin International Berhad's Debt?

As you can see below, at the end of June 2021, Dolphin International Berhad had RM18.7m of debt, up from RM17.8m a year ago. Click the image for more detail. On the flip side, it has RM9.02m in cash leading to net debt of about RM9.65m.

How Healthy Is Dolphin International Berhad's Balance Sheet?

We can see from the most recent balance sheet that Dolphin International Berhad had liabilities of RM16.0m falling due within a year, and liabilities of RM10.8m due beyond that. Offsetting this, it had RM9.02m in cash and RM3.39m in receivables that were due within 12 months. So its liabilities total RM14.4m more than the combination of its cash and short-term receivables.

Of course, Dolphin International Berhad has a market capitalization of RM79.5m, so these liabilities are probably manageable. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. When analysing debt levels, the balance sheet is the obvious place to start. But it is Dolphin International Berhad's earnings that will influence how the balance sheet holds up in the future. 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.

Over 12 months, Dolphin International Berhad reported revenue of RM8.9m, which is a gain of 7.3%, although it did not report any earnings before interest and tax. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

Caveat Emptor

Over the last twelve months Dolphin International Berhad produced an earnings before interest and tax (EBIT) loss. Its EBIT loss was a whopping RM38m. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. So we think its balance sheet is a little strained, though not beyond repair. Another cause for caution is that is bled RM34m in negative free cash flow over the last twelve months. So suffice it to say we consider the stock very risky. 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. For example Dolphin International Berhad has 5 warning signs (and 3 which are a bit concerning) we think you should know about.

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.

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.

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