Profitability DeteriorationA sustained swing to net losses erodes retained earnings, limits reinvestment capacity, and weakens competitive positioning. Continued unprofitable operations increase the risk of cost cutting that can damage growth engines, making recovery and strategic execution harder over months.
Negative Cash FlowPersistent negative operating and free cash flow forces reliance on external financing, elevates liquidity risk, and constrains capital allocation. Over a 2–6 month horizon, cash burn can pressure day-to-day operations and necessitate asset sales or tighter credit terms.
Rising LeverageA sharp increase in debt alongside a shrinking equity base weakens the capital structure, raises interest and refinancing risk, and reduces strategic flexibility. Heightened leverage limits the company's ability to absorb continued losses or fund turnaround initiatives in the near term.