Net Margin CompressionA material drop in net margin implies rising operating costs, pricing pressure or increased overhead. Persisting margin compression would erode free cash flow and return on equity, constraining reinvestment and weakening the long-term profitability profile despite strong gross margins.
Small Scale / Concentration RiskA very small workforce suggests limited operational scale and potential overreliance on a few key personnel or customers. That structural concentration raises execution and scaling risks for larger contracts, geographic expansion or faster product rollout in competitive industrial markets.
Earnings Volatility / FCF ConversionSharp EPS decline and sub‑optimal FCF-to-net-income conversion indicate earnings and cash generation can diverge and be volatile. Persistent volatility reduces predictability of funding for growth, increases financing risk, and complicates long-term planning for capital allocation.