Does Dolphin Entertainment (NASDAQ:DLPN) Have A Healthy Balance Sheet?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the 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. Importantly, Dolphin Entertainment, Inc. (NASDAQ:DLPN) does carry debt. But the real question is whether this debt is making the company risky.

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. 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. 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.

View our latest analysis for Dolphin Entertainment

How Much Debt Does Dolphin Entertainment Carry?

You can click the graphic below for the historical numbers, but it shows that Dolphin Entertainment had US$5.40m of debt in June 2022, down from US$9.15m, one year before. However, its balance sheet shows it holds US$7.19m in cash, so it actually has US$1.79m net cash.

How Strong Is Dolphin Entertainment's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Dolphin Entertainment had liabilities of US$14.2m due within 12 months and liabilities of US$9.55m due beyond that. Offsetting this, it had US$7.19m in cash and US$9.56m in receivables that were due within 12 months. So it has liabilities totalling US$7.02m more than its cash and near-term receivables, combined.

Since publicly traded Dolphin Entertainment shares are worth a total of US$42.4m, it seems unlikely that this level of liabilities would be a major threat. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. Despite its noteworthy liabilities, Dolphin Entertainment boasts net cash, so it's fair to say it does not have a heavy debt load! 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're focused on the future you can check out this free report showing analyst profit forecasts.

Over 12 months, Dolphin Entertainment reported revenue of US$39m, which is a gain of 40%, 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 in the last year Dolphin Entertainment had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through US$3.1m of cash and made a loss of US$2.7m. Given it only has net cash of US$1.79m, the company may need to raise more capital if it doesn't reach break-even 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. By investing before those profits, shareholders take on more risk in the hope of bigger rewards. 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. Case in point: We've spotted 2 warning signs for Dolphin Entertainment you should be aware of.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.