Funko (NASDAQ:FNKO) Has Debt But No Earnings; Should You Worry?

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. We note that Funko, Inc. (NASDAQ:FNKO) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

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When Is Debt A Problem?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we think about a company's use of debt, we first look at cash and debt together.

What Is Funko's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of September 2025 Funko had US$241.0m of debt, an increase on US$223.4m, over one year. However, it does have US$39.2m in cash offsetting this, leading to net debt of about US$201.8m.

How Strong Is Funko's Balance Sheet?

The latest balance sheet data shows that Funko had liabilities of US$457.4m due within a year, and liabilities of US$58.2m falling due after that. Offsetting these obligations, it had cash of US$39.2m as well as receivables valued at US$128.4m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$348.0m.

This deficit casts a shadow over the US$175.0m company, like a colossus towering over mere mortals. So we definitely think shareholders need to watch this one closely. After all, Funko would likely require a major re-capitalisation if it had to pay its creditors today. 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 Funko'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.

Check out our latest analysis for Funko

Over 12 months, Funko made a loss at the EBIT level, and saw its revenue drop to US$929m, which is a fall of 11%. That's not what we would hope to see.

Caveat Emptor

Not only did Funko's revenue slip over the last twelve months, but it also produced negative earnings before interest and tax (EBIT). Indeed, it lost a very considerable US$45m at the EBIT level. When we look at that alongside the significant liabilities, we're not particularly confident about the company. It would need to improve its operations quickly for us to be interested in it. Not least because it had negative free cash flow of US$9.5m over the last twelve months. So suffice it to say we consider the stock to be risky. 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. Be aware that Funko is showing 1 warning sign in our investment analysis , you should know about...

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.