Should falling profits be a business concern? And why?

Question

Economics related question

Answer 1

Falling profits are a definite concern if there's no strategy in place. I know a company that is losing profits because they've extended into a new form of business. However, they're using this new form of business so that they can advertise this service to other potential clients eventually reaping much greater profits. This is possible because by losing profits on this other project, they're establishing themselves as the sole provider of the service.

Answer 2

Falling profits that are cash flow related are a business concern because making a profit should be why you are in business in the first place.

Other factors to consider are falling revenue and rising costs of goods sold, falling working capital, and increased debt to equity ratio.