Fresenius SE KGaA (ETR:FRE) Will Be Hoping To Turn Its Returns On Capital Around

Ignoring the stock price of a company, what are the underlying trends that tell us a business is past the growth phase? A business that's potentially in decline often shows two trends, a return on capital employed (ROCE) that's declining, and a base of capital employed that's also declining. This combination can tell you that not only is the company investing less, it's earning less on what it does invest. So after we looked into Fresenius SE KGaA (ETR:FRE), the trends above didn't look too great.

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Return On Capital Employed (ROCE): What Is It?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for Fresenius SE KGaA:

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

0.057 = €1.9b ÷ (€41b - €8.3b) (Based on the trailing twelve months to June 2025).

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

Check out our latest analysis for Fresenius SE KGaA

Above you can see how the current ROCE for Fresenius SE KGaA compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Fresenius SE KGaA .

What The Trend Of ROCE Can Tell Us

In terms of Fresenius SE KGaA's historical ROCE trend, it isn't fantastic. To be more specific, today's ROCE was 8.4% five years ago but has since fallen to 5.7%. What's equally concerning is that the amount of capital deployed in the business has shrunk by 39% over that same period. The combination of lower ROCE and less capital employed can indicate that a business is likely to be facing some competitive headwinds or seeing an erosion to its moat. Typically businesses that exhibit these characteristics aren't the ones that tend to multiply over the long term, because statistically speaking, they've already gone through the growth phase of their life cycle.

In Conclusion...

In short, lower returns and decreasing amounts capital employed in the business doesn't fill us with confidence. Investors must expect better things on the horizon though because the stock has risen 37% in the last five years. Regardless, we don't like the trends as they are and if they persist, we think you might find better investments elsewhere.

One final note, you should learn about the 3 warning signs we've spotted with Fresenius SE KGaA (including 1 which makes us a bit uncomfortable) .

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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.