Margins matter. The more Towers Watson
Here's the current margin snapshot for Towers Watson over the trailing 12 months: Gross margin is 32.4%, while operating margin is 14.3% and net margin is 8.5%.
Unfortunately, a look at the most recent numbers doesn't tell us much about where Towers Watson has been, or where it's going. A company with rising gross and operating margins often fuels its growth by increasing demand for its products. If it sells more units while keeping costs in check, its profitability increases. Conversely, a company with gross margins that inch downward over time is often losing out to competition, and possibly engaging in a race to the bottom on prices. If it can't make up for this problem by cutting costs -- and most companies can't -- then both the business and its shares face a decidedly bleak outlook.
Of course, over the short term, the kind of economic shocks we recently experienced can drastically affect a company's profitability. That's why I like to look at five fiscal years' worth of margins, along with the results for the trailing 12 months, the last fiscal year, and last fiscal quarter (LFQ). You can't always reach a hard conclusion about your company's health, but you can better understand what to expect, and what to watch.
Here's the margin picture for Towers Watson over the past few years.
Source: S&P Capital IQ. Dollar amounts in millions. FY = fiscal year. TTM = trailing 12 months.
Because of seasonality in some businesses, the numbers for the last period on the right -- the TTM figures -- aren't always comparable to the FY results preceding them. To compare quarterly margins to their prior-year levels, consult this chart.
Source: S&P Capital IQ. Dollar amounts in millions. FQ = fiscal quarter.
Here's how the stats break down:
- Over the past five years, gross margin peaked at 32.3% and averaged 31.7%. Operating margin peaked at 15.1% and averaged 13.6%. Net margin peaked at 8.8% and averaged 7.2%.
- TTM gross margin is 32.4%, 70 basis points better than the five-year average. TTM operating margin is 14.3%, 70 basis points better than the five-year average. TTM net margin is 8.5%, 130 basis points better than the five-year average.
With recent TTM operating margins exceeding historical averages, Towers Watson looks like it is doing fine.
Looking for alternatives to Towers Watson? It takes more than great companies to build a fortune for the future. Learn the basic financial habits of millionaires next door and get focused stock ideas in our free report, "3 Stocks That Will Help You Retire Rich." Click here for instant access to this free report.
- Add Towers Watson to My Watchlist.