High Financial LeverageElevated debt relative to equity materially limits financial flexibility and increases default and refinancing risk during cyclicality. Even with improving profits, high leverage constrains capital allocation, raises interest burden sensitivity, and slows the company's ability to invest or absorb shocks long-term.
Thin Net Margins Limit Downside CushionVery low net margins mean small swings in volumes, input costs, or working capital can erode profits quickly. Thin bottom-line returns reduce retained earnings growth, impair the pace of deleveraging and capex funding, and leave limited room for strategic investments without external financing.
Revenue Volatility And Recent DeclineIntermittent top-line performance and a recent revenue decline signal inconsistent demand or execution challenges. Revenue volatility undermines forecasting, compromises steady cash flow generation, and makes it harder to leverage fixed costs and sustain margins as the company scales.