Capital Allocation Trends At Fresenius Medical Care (ETR:FME) Aren't Ideal

If we're looking to avoid a business that is in decline, what are the trends that can warn us ahead of time? Businesses in decline often have two underlying trends, firstly, a declining return on capital employed (ROCE) and a declining base of capital employed. Basically the company is earning less on its investments and it is also reducing its total assets. Having said that, after a brief look, Fresenius Medical Care (ETR:FME) we aren't filled with optimism, but let's investigate further.

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Understanding Return On Capital Employed (ROCE)

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on Fresenius Medical Care is:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.062 = €1.6b ÷ (€31b - €5.7b) (Based on the trailing twelve months to June 2025).

Thus, Fresenius Medical Care has an ROCE of 6.2%. Even though it's in line with the industry average of 5.7%, it's still a low return by itself.

See our latest analysis for Fresenius Medical Care

Above you can see how the current ROCE for Fresenius Medical Care compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Fresenius Medical Care .

What Does the ROCE Trend For Fresenius Medical Care Tell Us?

In terms of Fresenius Medical Care's historical ROCE movements, the trend doesn't inspire confidence. To be more specific, the ROCE was 9.2% five years ago, but since then it has dropped noticeably. On top of that, it's worth noting that the amount of capital employed within the business has remained relatively steady. Since returns are falling and the business has the same amount of assets employed, this can suggest it's a mature business that hasn't had much growth in the last five years. So because these trends aren't typically conducive to creating a multi-bagger, we wouldn't hold our breath on Fresenius Medical Care becoming one if things continue as they have.

Our Take On Fresenius Medical Care's ROCE

In summary, it's unfortunate that Fresenius Medical Care is generating lower returns from the same amount of capital. It should come as no surprise then that the stock has fallen 23% over the last five years, so it looks like investors are recognizing these changes. That being the case, unless the underlying trends revert to a more positive trajectory, we'd consider looking elsewhere.

While Fresenius Medical Care doesn't shine too bright in this respect, it's still worth seeing if the company is trading at attractive prices. You can find that out with our FREE intrinsic value estimation for FME on our platform.

While Fresenius Medical Care may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.