Declining Gross MarginA falling gross profit margin signals structural cost pressures or declining pricing power that erode core profitability. If persistent, it will compress operating leverage from revenue growth, strain margin recovery efforts, and require either higher pricing, cost restructuring, or product mix improvements to restore sustainable profitability.
Variable / Negative Cash FlowIntermittent negative free cash flow and variability in operating cash flow create a structural liquidity risk. Over months this limits the company's ability to fund capex, pay down debt, or invest in sales and R&D without external financing, increasing reliance on capital markets or lenders and reducing strategic flexibility.
Rising LeverageAn increasing debt-to-equity profile elevates financial risk by raising interest and refinancing burdens. Combined with cash flow variability and margin pressures, higher leverage reduces balance-sheet flexibility, heightens vulnerability to rate changes, and constrains the company’s ability to pursue strategic investments safely.