Yahoo Finance Does Fresenius Medical Care AG & Co. KGaA's (ETR:FME) Debt Level Pose A Problem?
Want to participate in a short research study? Help shape the future of investing tools and you could win a $250 gift card!
Investors pursuing a solid, dependable stock investment can often be led to Fresenius Medical Care AG & Co. KGaA (ETR:FME), a large-cap worth €21b. Big corporations are much sought after by risk-averse investors who find diversified revenue streams and strong capital returns attractive. But, its financial health remains the key to continued success. I will provide an overview of Fresenius Medical Care KGaA’s financial liquidity and leverage to give you an idea of Fresenius Medical Care KGaA’s position to take advantage of potential acquisitions or comfortably endure future downturns. Note that this commentary is very high-level and solely focused on financial health, so I suggest you dig deeper yourself into FME here.
View our latest analysis for Fresenius Medical Care KGaA
FME’s Debt (And Cash Flows)
FME's debt levels surged from €7.7b to €13b over the last 12 months , which accounts for long term debt. With this increase in debt, the current cash and short-term investment levels stands at €959m , ready to be used for running the business. Additionally, FME has produced €2.2b in operating cash flow in the last twelve months, leading to an operating cash to total debt ratio of 16%, indicating that FME’s debt is not covered by operating cash.
Can FME pay its short-term liabilities?
With current liabilities at €7.4b, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.02x. The current ratio is the number you get when you divide current assets by current liabilities. For Healthcare companies, this ratio is within a sensible range as there's enough of a cash buffer without holding too much capital in low return investments.
Is FME’s debt level acceptable?
With a debt-to-equity ratio of 65%, FME can be considered as an above-average leveraged company. This is not unusual for large-caps since debt tends to be less expensive than equity because interest payments are tax deductible. Since large-caps are seen as safer than their smaller constituents, they tend to enjoy lower cost of capital. We can assess the sustainability of FME’s debt levels to the test by looking at how well interest payments are covered by earnings. As a rule of thumb, a company should have earnings before interest and tax (EBIT) of at least three times the size of net interest. For FME, the ratio of 6.69x suggests that interest is well-covered. It is considered a responsible and reassuring practice to maintain high interest coverage, which makes FME and other large-cap investments thought to be safe.
Next Steps:
FME’s debt and cash flow levels indicate room for improvement. Its cash flow coverage of less than a quarter of debt means that operating efficiency could be an issue. However, the company exhibits an ability to meet its near-term obligations, which isn't a big surprise for a large-cap. I admit this is a fairly basic analysis for FME's financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Fresenius Medical Care KGaA to get a more holistic view of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for FME’s future growth? Take a look at our free research report of analyst consensus for FME’s outlook.
Valuation: What is FME worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether FME is currently mispriced by the market.
Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.
