High LeveragePersistently elevated debt-to-equity keeps financial risk high; even slight improvement leaves leverage that can constrain strategic flexibility. High debt raises interest and refinancing risk, limits capacity for M&A or organic investment, and heightens vulnerability to demand or rate shocks.
Declining Equity RatioA falling equity ratio erodes the balance sheet cushion against losses and increases insolvency risk in downturns. Over months this trend can raise borrowing costs, reduce lender confidence, and limit the company’s ability to absorb adverse shocks or fund growth without dilutive financing.
Weak Cash Conversion EfficiencySubpar conversion of reported earnings into cash implies earnings quality issues and potential working capital strain. If persistent, it forces reliance on external funding for capex or debt reduction, undermining sustainable free-cash-flow generation and limiting strategic options over the medium term.