Fresenius Medical Care (ETR:FME) Could Be At Risk Of Shrinking As A Company

Ignoring the stock price of a company, what are the underlying trends that tell us a business is past the growth phase? More often than not, we'll see a declining return on capital employed (ROCE) and a declining amount of capital employed. This indicates to us that the business is not only shrinking the size of its net assets, but its returns are falling as well. 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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Return On Capital Employed (ROCE): What Is It?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed 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)

0.057 = €1.6b ÷ (€33b - €5.4b) (Based on the trailing twelve months to March 2025).

So, Fresenius Medical Care has an ROCE of 5.7%. In absolute terms, that's a low return but it's around the Healthcare industry average of 5.1%.

See our latest analysis for Fresenius Medical Care

In the above chart we have measured Fresenius Medical Care's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Fresenius Medical Care for free.

How Are Returns Trending?

There is reason to be cautious about Fresenius Medical Care, given the returns are trending downwards. To be more specific, the ROCE was 8.8% five years ago, but since then it has dropped noticeably. Meanwhile, capital employed in the business has stayed roughly the flat over the period. 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.

The Bottom Line 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. Investors haven't taken kindly to these developments, since the stock has declined 30% from where it was five years ago. Unless there is a shift to a more positive trajectory in these metrics, we would look elsewhere.

Fresenius Medical Care could be trading at an attractive price in other respects, so you might find our free intrinsic value estimation for FME on our platform quite valuable.

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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.