High LeverageHigh debt‑to‑equity increases financial risk; elevated leverage raises interest expense sensitivity and limits capacity to invest or respond to shocks. For a business with working‑capital needs, this magnifies vulnerability to rate rises or revenue hiccups over the medium term.
Declining Net Profit MarginsA significant decline in net profit margin shows earnings compression beyond gross profit, implying rising operating costs, price pressure or inefficiencies. Persistent margin erosion reduces retained earnings and weakens ROE and reinvestment capacity across several quarters if not addressed.
Weak Cash Conversion / FCF VolatilityFluctuating and recently negative free cash flow shows weak cash conversion from earnings, straining ability to fund operations, capex or deleveraging. For a distributor with inventory cycles, persistent FCF volatility raises refinancing and liquidity risk over months ahead.