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Is Dolphin Entertainment (NASDAQ: DLPN ) a Risky Investment?

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Li Lu, an external fund manager backed by Berkshire Hathaway’s Charlie Munger, said unabashedly, “The biggest investment risk is not price fluctuations, but whether you will suffer permanent capital losses.” Therefore, when When you consider how risky any particular stock is, it’s obvious that you need to consider debt, as too much debt can put a company in trouble.We have noticed Dolphin Entertainment (NASDAQ: DLPN) does have debt on its balance sheet. But the real question is whether this debt poses a risk to the company.

When is debt dangerous?

Debt and other liabilities become a risk when businesses cannot easily meet these obligations, either through free cash flow or by raising capital at attractive prices. If things get really bad, lenders can take control of the business. However, the more common (and still costly) scenario is that a company must issue shares at a low price, permanently diluting shareholders, just to prop up its balance sheet. Having said that, the most common scenario is that the company manages its debt fairly well – and to its own advantage. When we examine debt levels, we first consider both cash and debt levels.

Check out our latest analysis for Dolphin Entertainment

How much debt does Dolphin Entertainment carry?

You can click the chart below to see historical data, but it shows that Dolphin Entertainment had $16.6 million in debt as of March 2023, an increase of $5.67 million in one year. However, its net debt is less at around $8.77 million thanks to its cash reserves of $7.86 million.

Nasdaq CM: DLPN Debt Equity History July 4, 2023

How strong is Dolphin Entertainment’s balance sheet?

Zooming in on the latest balance sheet data, we can see that Dolphin Entertainment has $23.8 million in liabilities due within 12 months and $18.5 million in liabilities due within 12 months. It had $7.86 million in cash and $13.8 million in receivables due within 12 months to offset this loss. Consequently, its liabilities exceed cash and (recent) accounts receivable combined by $20.6 million.

That’s a huge leverage relative to its $27.5 million market cap. Shareholders could face significant dilution if lenders demand it shore up the balance sheet. When analyzing debt levels, the balance sheet is obviously the starting point. But most importantly, future earnings will determine Dolphin Entertainment’s ability to maintain a healthy balance sheet going forward.So if you want to know what the pros think, you might find This free report on analyst profit forecasts get interesting.

Dolphin Entertainment reported $41 million in revenue over the past 12 months, up 9.3%, although it didn’t report any EBIT. We generally like to see faster growth from unprofitable companies, but every company has its own idiosyncrasies.

emptor emptor

Importantly, Dolphin Entertainment posted an earnings before interest and taxes (EBIT) loss last year. Its EBIT loss was as high as $4 million. When we look at this and review the liabilities on its balance sheet relative to cash, it seems unwise to us that the company has any debt. So we think its balance sheet is a bit tight, but not beyond repair. However, it didn’t help that it burned through $6.3 million in cash last year. It can be said that we think this stock is very risky. When analyzing debt levels, the balance sheet is obviously the starting point. However, not all investment risk resides on the balance sheet — far from it.realized dolphin entertainment is showing 4 warning signs in our investment analysis 1 of which is somewhat unpleasant…

After all, if 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 No delay.

Valuation is complicated, but we’re helping make it simple.

Find out if Dolphin Entertainment may be overvalued or undervalued by viewing our comprehensive analysis, which includes Fair value estimates, risks and caveats, dividends, insider trading and financial health.

View free analysis

This Simply Wall St article is general in nature. We use an unbiased approach only to provide reviews based on historical data and analyst forecasts, and our articles are not intended to provide financial advice. It does not constitute a recommendation to buy or sell any stock and does not take into account your objectives or your financial situation. Our goal is to provide you with long-term focused analysis driven by fundamental data. Note that our analysis may not take into account the latest price-sensitive company announcements or qualitative material. Simply Wall St does not hold a position in any of the stocks mentioned above.

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