Is Dolphin Entertainment Inc (NASDAQ:DLPN) A Financially Sound Company?

Investors are always looking for growth in small-cap stocks like Dolphin Entertainment Inc (NASDAQ:DLPN), with a market cap of $38.04M. However, an important fact which most ignore is: how financially healthy is the business? Given that DLPN is not presently profitable, it’s crucial to evaluate the current state of its operations and pathway to profitability. Here are few basic financial health checks you should consider before taking the plunge. Though, given that I have not delve into the company-specifics, I suggest you dig deeper yourself into DLPN here.

Does DLPN generate an acceptable amount of cash through operations?

DLPN's debt levels have fallen from $45.7M to $19.7M over the last 12 months – this includes both the current and long-term debt. With this reduction in debt, DLPN currently has $0.7M remaining in cash and short-term investments for investing into the business. Though its small level of operating cash flow means calculating cash-to-debt wouldn't be too useful, though these low levels of cash means that operational efficiency is worth a look. For this article’s sake, I won’t be looking at this today, but you can examine some of DLPN’s operating efficiency ratios such as ROA here.

Does DLPN’s liquid assets cover its short-term commitments?

With current liabilities at $39.7M, the company is not able to meet these obligations given the level of current assets of $8.2M, with a current ratio of 0.21x below the prudent level of 3x.

Can DLPN service its debt comfortably?

Since total debt levels have outpaced equities, DLPN is a highly leveraged company. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. However, since DLPN is currently unprofitable, there’s a question of sustainability of its current operations. Running high debt, while not yet making money, can be risky in unexpected downturns as liquidity may dry up, making it hard to operate.

Next Steps:

Are you a shareholder? Although DLPN’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet obligations which means its debt is being efficiently utilised. Though its low liquidity raises concerns over whether short term obligations can be met in time, and increasing debt funding to meet these needs could prove difficult. In the future, DLPN's financial situation may change. I recommend researching market expectations for DLPN's future growth on our free analysis platform.

Are you a potential investor? DLPN’s high debt level shouldn’t scare off investors just yet. Its operating cash flow seems adequate to meet obligations which means its debt is being put to good use. Though, the company may not be able to pay all of its upcoming liabilities from its current short-term assets. In order to build your conviction in the stock, you need to further analyse DLPN's track record. I encourage you to continue your research by taking a look at DLPN's past performance analysis on our free platform to figure out DLPN's financial health position.

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Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article 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.