In This Article:
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.