Breaking Down Toll Brothers, Inc. (TOL) Financial Health: Key Insights for Investors

You're looking at Toll Brothers, Inc. (TOL) right now, and the luxury home market is giving mixed signals-it's a classic high-end puzzle where the macro environment hits the mass market, but the affluent buyer still has cash. Honestly, the company's full-year 2025 projections show remarkable resilience, with analysts anticipating adjusted earnings per share (EPS) of approximately $13.75 per diluted share, which is a powerful number in this interest rate climate. But you can't ignore the slowdown: the third-quarter backlog value-which is their pipeline of contracted sales-stood at $6.38 billion, a 10% drop from the prior year, suggesting a real cooling in new contract units.

Still, Toll Brothers' focus on the less price-sensitive luxury buyer is paying off in margins; they are projecting a full-year adjusted gross margin of 27.25%, which is defintely a testament to pricing power and operational efficiency. We need to figure out if that projected $10.9 billion in home sales revenue for the fiscal year is sustainable, or if the shrinking backlog is a leading indicator of trouble ahead. This isn't a simple 'buy or sell' call; it's about mapping their cash flow strength against the persistent headwind of high mortgage rates, so let's break down the true financial health of this premium builder.

Revenue Analysis

You need to know where the money is coming from, and for Toll Brothers, Inc. (TOL), the picture is clear: it's a luxury home-building operation, first and foremost. Your core revenue stream is home sales, and that segment is holding up, even with higher interest rates making things tricky for the broader market.

For the third quarter of fiscal year 2025, the company generated home sales revenues of approximately $2.88 billion. That's a solid 6% increase compared to the same quarter in the prior year, driven by delivering 2,959 homes at an average price of around $974,000. The luxury buyer is proving to be less rate-sensitive, which is a key strength for this business model.

Here's the quick math on the full-year outlook: management is guiding for total deliveries of approximately 11,200 units for the full fiscal year 2025, with an average delivered price between $950,000 and $960,000. This suggests a total home sales revenue expectation of roughly $10.9 billion for the year. This is a modest but important year-over-year increase, with the trailing twelve months (TTM) revenue as of July 31, 2025, already sitting at $10.88 billion, representing a 3.26% growth rate.

When you break down the revenue segments, you see just how dominant the home-building operation is. Other revenue sources, like income from unconsolidated entities and land sales, are a very small piece of the pie. For instance, in Q3 FY 2025, this other income contributed only $15.0 million. That's less than one percent of the total revenue, so your investment thesis must be grounded in the health of the luxury home market.

The most significant change in the near term is the softening in new contract value, which signals a headwind for 2026 revenue. While Q3 home sales revenue was up, the net signed contract value was flat year-over-year at $2.41 billion, and the number of homes contracted fell by 4%. This is why the backlog-the revenue locked in for future delivery-is a critical metric right now. Backlog value at the end of Q3 FY 2025 had dropped 10% year-over-year to $6.38 billion. That's a real-world effect of higher mortgage rates finally hitting even the affluent buyer.

To put this into perspective, here is the Q3 FY 2025 performance data:

The core takeaway is that current revenue is strong because of a robust backlog from prior periods, but the shrinking backlog suggests the revenue growth engine is slowing down. You need to watch new contract signings very defintely over the next two quarters. For a deeper dive into the valuation and risks, you can read the full report here: Breaking Down Toll Brothers, Inc. (TOL) Financial Health: Key Insights for Investors.

Profitability Metrics

You're looking for a clear picture of Toll Brothers, Inc. (TOL)'s financial engine, and the 2025 data shows a luxury homebuilder still highly profitable, but with margins under pressure. The company's full-year outlook for fiscal year 2025 projects a strong net profit margin of approximately 12.86%, which is a significant premium over the industry average.

This premium is what you'd defintely expect from a luxury-focused builder, but the trend is what matters. In the third quarter of 2025, we saw a slight deterioration, with the Net Income Margin falling to 12.55%, a 118 basis point (bps) drop from the same period last year. This signals that while demand is strong, rising costs and a shift in product mix are creating headwinds. For the full year, Toll Brothers, Inc. expects to deliver roughly 11,200 homes, generating revenue of about $10.69 billion.

Gross, Operating, and Net Profit Margins

The core of profitability analysis starts with the three key margins. Toll Brothers, Inc. has managed to maintain a high gross margin, which is the profit left after subtracting the cost of goods sold (COGS). Their full-year 2025 guidance for the Adjusted Home Sales Gross Margin-which excludes interest and inventory write-downs-is a solid 27.25%.

Here's the quick math on where Toll Brothers, Inc. stands against the broader homebuilding industry, based on the most current 2025 data and industry benchmarks from 2023 (the latest comprehensive study available):

The company's ability to command a net profit margin over 400 basis points higher than the average builder highlights its successful focus on the luxury segment, which is less sensitive to price changes. Still, you need to watch the operational efficiency closely.

Operational Efficiency and Margin Trends

The slight margin compression we're seeing is a key risk. The Gross Margin for home sales in Q3 2025 was 25.6%, down from 27.4% in the prior year's quarter. This dip reflects higher costs of goods sold (COGS) and the company's strategic shift toward building more 'spec' homes (speculative homes built before a buyer is secured), which generally carry lower margins than custom build-to-order homes.

But the good news is in cost management. The Selling, General, and Administrative (SG&A) expenses, which cover overhead costs, show improved efficiency. SG&A as a percentage of home sales revenues was 8.8% in Q3 2025, an improvement from 9.0% in Q3 2024. That's disciplined cost control offsetting some of the pressure on the gross margin line.

• Gross Margin: Down due to higher COGS and spec home mix.
• SG&A Margin: Improved by 20 bps, showing better overhead control.
• Net Margin: Still premium, but the rate of growth is slowing.

The company's management expects the full-year SG&A to land between 9.4% and 9.5% of home sales revenues. This tight control on overhead is critical, especially when the gross margin is facing external pressures like material and labor costs. To understand the drivers of their demand, you should be Exploring Toll Brothers, Inc. (TOL) Investor Profile: Who's Buying and Why?

Debt vs. Equity Structure

You're looking at Toll Brothers, Inc. (TOL) and wondering how they fund their land purchases and construction-the classic debt versus equity balancing act. The quick takeaway is that Toll Brothers, Inc. runs a remarkably conservative balance sheet for a homebuilder, relying far more on shareholder equity than on borrowing.

As of the third quarter of fiscal year 2025 (July 2025), Toll Brothers, Inc.'s debt-to-equity ratio stood at just 0.38. Here's the quick math: that means for every dollar of shareholder equity, the company carries only 38 cents of debt. This is defintely a strong position, especially when you compare it to the homebuilding industry's average D/E ratio, which is right around 0.38 as well. Toll Brothers, Inc. is managing its leverage in line with the best in its class, which is exactly what you want to see in a cyclical business.

The company's debt structure is almost entirely long-term. In the third quarter of FY 2025, the balance sheet showed $3,072 million in long-term debt and capital lease obligations, but critically, $0 million in short-term debt. This is a huge signal of financial discipline; they aren't relying on immediate, high-pressure debt to finance operations. Their total stockholders' equity, the foundation of their financing, was robust at approximately $8.096 billion.

Toll Brothers, Inc. has been strategic about its debt management and credit profile in 2025. This year, they've been busy securing their long-term financial flexibility:

• S&P Global Ratings upgraded the company's issuer credit rating to 'BBB' from 'BBB-' in June 2025.
• They issued $500 million in new senior notes in June 2025, with a 5.6% coupon rate, maturing in 2035.
• The company extended the maturity of its senior unsecured revolving credit agreement to February 7, 2030, and expanded the total available revolving loans from $1.955 billion to $2.35 billion in February 2025.

This debt-to-equity balance shows a management team comfortable using debt to fuel growth-like land acquisition-but only when it's long-term and manageable. They are using debt as a tool, not a crutch. The recent S&P credit rating upgrade to 'BBB' reflects the credit market's confidence that the company can sustain a low debt-to-EBITDA ratio, even with economic headwinds. This allows them to borrow at more favorable rates, keeping their cost of capital low. You can see more about who is betting on this strategy in Exploring Toll Brothers, Inc. (TOL) Investor Profile: Who's Buying and Why?

To summarize the capital structure health, here are the key figures from the Q3 FY 2025 financial report:

Liquidity and Solvency

You want to know if Toll Brothers, Inc. (TOL) has the cash to manage its operations and weather a downturn, and the short answer is yes, defintely. The company maintains a strong liquidity profile, anchored by a high current ratio and robust projected cash flow from operations for the 2025 fiscal year.

The key to understanding a homebuilder's financial health is looking past the surface. Toll Brothers, Inc.'s TTM (trailing twelve months) Current Ratio as of November 2025 stands at a strong 4.14. This means for every dollar of near-term debt, they have over four dollars in current assets to cover it. That's a huge buffer. But here's the quick math on the flip side: the Quick Ratio is only around 0.51. The difference tells you everything: a massive portion of their current assets is tied up in inventory-land and homes under construction-which isn't cash until a house closes. That's a structural reality for the industry.

This inventory-heavy structure drives the working capital trend. Toll Brothers, Inc. ended the third quarter of fiscal year 2025 with total liquidity of $3.04 billion, which breaks down into approximately $0.85 billion in cash and equivalents and $2.19 billion available under their revolving credit facility. This substantial cushion, coupled with a growing equity base of $8.10 billion at the end of Q3 2025, shows a very healthy balance sheet.

The cash flow statement confirms this financial strength, painting a clear picture of how they fund their growth and shareholder returns:

• Operating Cash Flow: The company projects generating approximately $1 billion in cash flow from operations for the full fiscal year 2025. That's a powerful source of internal funding.
• Investing Cash Flow: They are disciplined in land acquisition, spending about $432.7 million in Q3 2025 to acquire 2,755 lots, focusing on maintaining a multi-year land supply.
• Financing Cash Flow: Management is actively managing the debt profile, issuing $500.0 million in new senior notes in June 2025 and redeeming $350.0 million in older notes in July 2025. Plus, they are returning capital, projecting $600 million in share repurchases for the full year.

The liquidity position is a clear strength. The Net Debt-to-Capital ratio stood at a comfortable 19.3% at the close of Q3 FY2025. The only potential concern is the cyclical nature of the housing market, but the company has no significant debt maturities in fiscal 2025, giving them breathing room. They are built to last. For a deeper dive into who is betting on this luxury builder, you might want to read Exploring Toll Brothers, Inc. (TOL) Investor Profile: Who's Buying and Why?

Here is a snapshot of the core liquidity metrics based on the latest 2025 data:

Valuation Analysis

You're looking at Toll Brothers, Inc. (TOL) and wondering if the market has it right, especially with the housing sector's volatility. The direct takeaway is that, based on key metrics and analyst consensus as of November 2025, Toll Brothers, Inc. appears to be undervalued, trading significantly below the average analyst target price.

As a luxury homebuilder, Toll Brothers, Inc. typically commands a slight premium, but its current valuation multiples suggest a discount compared to its historical averages and, in some cases, its peers. Here's the quick math on the core ratios:

• Price-to-Earnings (P/E): The P/E ratio stands at approximately 9.22 as of November 20, 2025, which is below its 10-year historical average of 9.61.
• Price-to-Book (P/B): The P/B ratio is around 1.57, reflecting that the stock trades at a moderate premium to its book value, a common trait for a high-quality builder.
• Enterprise Value-to-EBITDA (EV/EBITDA): This metric is currently at about 7.68, which is near its 5-year average of 7.70, indicating a fairly valued operational multiple.

The forward P/E ratio, which uses projected 2025 earnings per share (EPS) of $13.82, is even lower at 9.28, suggesting earnings growth is not fully priced in.

Stock Performance and Analyst Consensus

The stock's recent price action has been a bit defintely choppy, giving investors pause. Over the last 12 months, the total shareholder return for Toll Brothers, Inc. was a decline of -16.4% as of late November 2025, despite a positive year-to-date return of 9.62% for 2025. The stock has traded in a wide 52-week range, hitting a low of $86.67 and a high of $169.52. The most recent closing price was $126.25.

The analyst community, however, remains optimistic. The consensus rating from sixteen research firms is a Moderate Buy. Their average one-year price target is approximately $149.43, which is a significant upside from the current price. This target aligns closely with a fair value estimate of $149.94, which suggests the stock is currently 15.8% undervalued. You need to understand the Mission Statement, Vision, & Core Values of Toll Brothers, Inc. (TOL) to fully gauge the long-term strategic value behind these targets.

Dividend Health and Payout

Toll Brothers, Inc. is not a high-yield stock, but its dividend is exceptionally safe and growing. The annual dividend per share is $1.00, translating to a dividend yield of approximately 0.79%. More important than the yield is the payout ratio, which is a very low 7.01%. This low payout ratio means the company is only using a small fraction of its earnings to pay dividends, giving it massive flexibility to reinvest in land, manage debt, and continue its share buyback program, which has been a major source of shareholder return.

Here is a summary of the key financial data points for your decision-making:

The stock's current price of around $126.25 sits well below the average target, so the opportunity here is clear: the market is pricing in near-term housing risks, but analysts see the long-term earnings power and brand strength overcoming those headwinds. Your next step should be to model a discounted cash flow (DCF) valuation using the consensus 2025 EPS to confirm the $149.43 target is achievable.

Risk Factors

You're looking for a clear picture of Toll Brothers, Inc. (TOL)'s financial health, and that means mapping the risks, not just the returns. The short-term outlook, particularly for late fiscal year 2025, shows some clear headwinds. The company is defintely insulated by its luxury focus, but it's not immune to the broader economy; no homebuilder is.

The biggest near-term risk remains the external environment-specifically, the high interest rate climate. Even though Toll Brothers, Inc.'s affluent customer base is less sensitive to mortgage rate hikes (with about 28% of buyers paying all cash in Q4 2024), elevated rates still curb demand, especially in the lower end of their luxury segment. This macro pressure is already showing up in leading indicators, with a reported 4% decline in signed contracts and a 19% contraction in backlog value as of the end of the third quarter of fiscal year 2025. This suggests sluggishness moving into Q4 and early 2026.

Here's the quick math: if the Federal Reserve doesn't cut the base rate by more than the anticipated 50 basis points over the next six months, the average 30-year mortgage will stay high enough to keep many potential move-up buyers on the sidelines. Recession risk is still the homebuilding sector's biggest threat.

Operational and strategic risks are more manageable, but you can't ignore them. Toll Brothers, Inc. operates in a highly cyclical industry, and its geographic concentration, while broad (over 60 markets in 24 states), still exposes it to localized economic downturns. Plus, cost pressures from land acquisition and construction labor shortages are persistent issues. For fiscal year 2025, the company is guiding for an adjusted home sales gross margin of 27.25%, but maintaining that margin in a high-cost environment requires constant, rigorous cost control.

The strategic risks are tied to execution, specifically the push for growth. Toll Brothers, Inc. is projecting an 8% to 10% growth in community count, targeting 440 to 450 active communities by the end of FY 2025. If they can't execute this expansion efficiently, or if the market turns, the rising number of speculative (spec) home builds could quickly become a drag on capital.

The company's mitigation strategies are clear and actionable:

• Customer Insulation: Affluent buyers have an average loan-to-value (LTV) ratio of just 69% on financed homes, providing a significant financial buffer.
• Capital Efficiency: Toll Brothers, Inc. is actively shifting its land strategy to favor options over outright purchases, aiming for a mix of 60% optioned and 40% owned lots. This reduces capital at risk.
• Financial Strength: The balance sheet remains solid, ending Q3 FY 2025 with $852.3 million in cash and a conservative debt-to-capital ratio of 26.7%.

This financial discipline is why the full-year 2025 guidance for home sales revenue remains strong at $10.9 billion at the midpoint, with expected earnings per diluted share of approximately $14.00. They are focused on profitability over volume, which is the right move in this environment. For a deeper dive into who is betting on this strategy, check out Exploring Toll Brothers, Inc. (TOL) Investor Profile: Who's Buying and Why?

Growth Opportunities

Toll Brothers, Inc. (TOL) is positioned for steady, defensible growth by leaning into its core strength: the affluent buyer. The company's strategy is not about chasing volume in the volatile entry-level market; it's about optimizing capital efficiency and scaling luxury personalization. This focus is defintely the key to their near-term outlook.

Strategic Pillars: Land, Product, and Capital

The company's growth drivers are built on a three-pronged strategic initiative: optimized land acquisition, product innovation, and capital return. The shift to a land-light strategy is critical, aiming for a 60% optioned and 40% owned lot mix. This reduces capital risk and improves return on equity (ROE).

On the product side, Toll Brothers is balancing operational efficiency with customer choice by moving to a roughly 50-50 balance between quick-delivery speculative (spec) homes and traditional build-to-order (BTO) homes. This allows for what they call mass personalization, combining speed with the luxury buyer's desire for customization. Market expansion is also a constant, with new luxury community launches in high-growth, affluent markets like Sunnyvale, California, and Leander, Texas. You can read more about their underlying philosophy in the Mission Statement, Vision, & Core Values of Toll Brothers, Inc. (TOL).

Finally, the commitment to capital return acts as a growth catalyst for shareholders. For example, in the third quarter of fiscal year 2025, the company repurchased approximately 1.8 million shares for a total purchase price of $201.4 million, which directly boosts earnings per share.

Near-Term Financial Projections

The company's full-year guidance for fiscal year 2025 remains robust, reflecting confidence in the luxury segment's resilience. Management projects home sales revenue of approximately $10.9 billion and expects to deliver between 11,400 and 11,600 homes.

Here's the quick math on profitability: The full-year earnings per share (EPS) is projected to be around $14.00. Looking ahead, analysts expect earnings to grow even further, forecasting a rise from $13.83 per share to $15.66 per share in the next fiscal year, an increase of 13.23%. This is a strong signal that the luxury market tailwinds are expected to continue supporting the bottom line.

Competitive Moats in a Volatile Market

Toll Brothers, Inc. maintains a clear competitive advantage by dominating the luxury housing segment, a market less sensitive to interest rate fluctuations. Their customer base is financially resilient; in a recent quarter, approximately 28% of buyers paid all cash, and those who took a mortgage had an average loan-to-value (LTV) ratio of just 69%. This financial insulation is a powerful moat against the affordability constraints that plague the broader housing market.

This focus allows the company to maintain premium pricing and healthy margins. The average selling price (ASP) of a delivered home was near $974,000 in Q3 2025, which is significantly higher than volume builders. This premium positioning, coupled with a strong brand and a disciplined land strategy in desirable locations, ensures they can sustain an adjusted gross margin of 27.5%, which is a sign of pricing power that few competitors can match.

• Focus on affluent buyers insulates demand from rate hikes.
• Land-light strategy boosts capital efficiency and lowers risk.
• Strong brand recognition supports premium pricing power.

Next Step: Finance should draft a scenario analysis for the impact of a 50-basis-point interest rate drop on the projected $10.9 billion revenue by the end of the quarter.