Rising LeverageAn increasing debt-to-equity ratio raises interest expense and financial risk, limiting flexibility to fund capex or absorb demand shocks. Elevated leverage can pressure margins and prioritizes servicing debt over growth investments, making the business more sensitive to economic or cyclical downturns.
Negative Free Cash Flow Despite OCF ImprovementNegative free cash flow means capital expenditures or working capital consume operating gains, constraining the firm’s ability to reduce debt or invest organically without external financing. This structural cash gap increases refinancing and liquidity risk over the medium term.
Declining Net And EBITDA MarginsFalling net and EBITDA margins, despite better gross margins, point to rising operating costs, non-operating expenses or inefficiencies. Persistent margin compression weakens earnings resilience to cost shocks and reduces free cash conversion, limiting the durability of current profitability levels.