13-07-2025
Fresenius SE KGaA (ETR:FRE) May Have Issues Allocating Its Capital
If you're looking at a mature business that's past the growth phase, what are some of the underlying trends that pop up? When we see a declining return on capital employed (ROCE) in conjunction with a declining base of capital employed, that's often how a mature business shows signs of aging. Basically the company is earning less on its investments and it is also reducing its total assets. On that note, looking into Fresenius SE KGaA (ETR:FRE), we weren't too upbeat about how things were going.
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If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Fresenius SE KGaA is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.052 = €1.8b ÷ (€43b - €8.3b) (Based on the trailing twelve months to March 2025).
Thus, Fresenius SE KGaA has an ROCE of 5.2%. On its own that's a low return on capital but it's in line with the industry's average returns of 5.1%.
See 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'd like, you can check out the forecasts from the analysts covering Fresenius SE KGaA for free.
In terms of Fresenius SE KGaA's historical ROCE trend, it isn't fantastic. To be more specific, today's ROCE was 8.6% five years ago but has since fallen to 5.2%. In addition to that, Fresenius SE KGaA is now employing 34% less capital than it was five years ago. When you see both ROCE and capital employed diminishing, it can often be a sign of a mature and shrinking business that might be in structural decline. If these underlying trends continue, we wouldn't be too optimistic going forward.
In short, lower returns and decreasing amounts capital employed in the business doesn't fill us with confidence. Despite the concerning underlying trends, the stock has actually gained 7.4% over the last five years, so it might be that the investors are expecting the trends to reverse. Regardless, we don't like the trends as they are and if they persist, we think you might find better investments elsewhere.
Like most companies, Fresenius SE KGaA does come with some risks, and we've found 2 warning signs that you should be aware of.
While Fresenius SE KGaA 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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