Dolphin Entertainment (NASDAQ:DLPN) Has Debt But No Earnings; Should You Worry?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. As with many other companies Dolphin Entertainment, Inc. (NASDAQ:DLPN) makes use of debt. But the real question is whether this debt is making the company risky.

Why Does Debt Bring Risk?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first step when considering a company's debt levels is to consider its cash and debt together.

Check out our latest analysis for Dolphin Entertainment

What Is Dolphin Entertainment's Debt?

As you can see below, Dolphin Entertainment had US$9.15m of debt at June 2021, down from US$9.71m a year prior. However, it does have US$9.25m in cash offsetting this, leading to net cash of US$100.2k.

How Healthy Is Dolphin Entertainment's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Dolphin Entertainment had liabilities of US$14.5m due within 12 months and liabilities of US$14.3m due beyond that. Offsetting this, it had US$9.25m in cash and US$5.42m in receivables that were due within 12 months. So its liabilities total US$14.1m more than the combination of its cash and short-term receivables.

Of course, Dolphin Entertainment has a market capitalization of US$86.0m, so these liabilities are probably manageable. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. 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.

In the last year Dolphin Entertainment wasn't profitable at an EBIT level, but managed to grow its revenue by 16%, to US$28m. We usually like to see faster growth from unprofitable companies, but each to their own.

So How Risky Is Dolphin Entertainment?

We have no doubt that loss making companies are, in general, riskier than profitable ones. 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$2.3m of cash and made a loss of US$5.0m. With only US$100.2k on the balance sheet, it would appear that its going to need to raise capital again soon. Summing up, we're a little skeptical of this one, as it seems fairly risky in the absence of free cashflow. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. To that end, you should be aware of the 3 warning signs we've spotted with Dolphin Entertainment .

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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.

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