The external fund manager backed by Berkshire Hathaway’s Charlie Munger, Li Lu, makes no bones about it when he says ‘The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.’ So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. Importantly, Dolphin Entertainment, Inc. (NASDAQ:DLPN) does carry debt. But should shareholders be worried about its use of debt?
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. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we examine debt levels, we first consider both cash and debt levels, together.
What Is Dolphin Entertainment’s Debt?
You can click the graphic below for the historical numbers, but it shows that as of September 2025 Dolphin Entertainment had US$25.4m of debt, an increase on US$20.7m, over one year. However, it does have US$7.83m in cash offsetting this, leading to net debt of about US$17.6m.
How Strong Is Dolphin Entertainment’s Balance Sheet?
According to the last reported balance sheet, Dolphin Entertainment had liabilities of US$29.9m due within 12 months, and liabilities of US$21.7m due beyond 12 months. Offsetting this, it had US$7.83m in cash and US$14.7m in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$29.0m.
When you consider that this deficiency exceeds the company’s US$20.0m market capitalization, you might well be inclined to review the balance sheet intently. Hypothetically, extremely heavy dilution would be required if the company were forced to pay down its liabilities by raising capital at the current share price. The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine Dolphin Entertainment’s ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.
View our latest analysis for Dolphin Entertainment
Over 12 months, Dolphin Entertainment reported revenue of US$53m, which is a gain of 3.9%, 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 Entertainment produced an earnings before interest and tax (EBIT) loss. Its EBIT loss was a whopping US$2.4m. Considering that alongside the liabilities mentioned above make us nervous about the company. We’d want to see some strong near-term improvements before getting too interested in the stock. Not least because it had negative free cash flow of US$1.8m over the last twelve months. So suffice it to say we consider the stock to be risky. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. For instance, we’ve identified 2 warning signs for Dolphin Entertainment that you should be aware of.
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.
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