A Financial Health and Viability Review for Elizabethtown College (PA) on May 13, 2025

It's Tuesday, May 13th, 2025. Time again, everybody, for another episode of the College Financial Health Show with Matt Hendricks and Gary Stocker. Thanks for making time to watch either the live version or the recorded version. Matt Hendricks, always a pleasure to chat with you on the show. Let's start with Elizabethtown College.

All right, let's pull up the Advanced Financial Compass. Uh, normally for the show, if you've seen the show before, I usually spend a decent amount of time prepping, so you're going to learn, learn about these schools right along with me in real time. Nice thing is we're only doing two, so I can kind of check a lot of different things and see what I find. So the first school is Elizabethtown College in Pennsylvania, and, uh, as usual, the default is to see net income margin first. And one of the things that you might— if you see something that looks like this, this maybe indicates— so there's a lot of volatility here.

Yeah, right.

So that might indicate that the, the audit is not pulling out operating, right? Because what causes a lot of the volatility is stock market, right? Stock market returns and that kind of stuff. So I'm going to double check really quick, just check their audit, see what their statement of activities looks like really quick. And I think this is a— this will be a good show just to show people how to go through, do a whole this from scratch. Um, so this is exactly what I was expecting. So you have change in net assets here, but there is not a separation of operating expenses and operating revenues from, from non-operating, which creates that volatility that you saw up here. So honestly, net income is not the best number to use in this case. What would be better is to use net cash from operating activities and then to scale it so that we can compare across schools. They use operating cash flow margin. That will be the best to look at. And this gives a much clearer picture of what's happening with operations at this school. And so you can probably already draw on a conclusion here. I'm ready to say that the school's in financial trouble just based on— they used to have a positive operating cash flow. And then things have gone south since about 2019. Negative operating cash flow in 1— well, this 2, 1, 2, 3, 4, 5, 6 years in a row. So remember, when you have negative net cash from operating activities, there can be some caveats here based on how they do the accounting. If they're pulling out the endowment draw or not. So one, we can do some checks here and double-check this. I guess one of the easiest ways to check would be just to look at the audit and see. So I'll do that really quick here for 2024. I'm going to go to their cash flow page. Okay, here's cash flow. So here's that negative, negative almost $7 million in the year prior, a negative $11 million. So what happens with schools that tend to not include their endowment draws, you typically will see net cash from investing activities be positive, showing that there's cash coming out of the investment accounts.

Yeah, right.

And that's going to support operations. So it looks like, it looks like they are actually one of those schools that's pulling, that's putting their endowment draws in this section. So the second, the next question is to look at whether it's if we— it doesn't appear that it's going to be enough to offset these losses. So I think they still have big losses even though they do the accounting a little weird. But let's double-check how big their draws are from their endowment and get a sense of where they're at here in terms of operating. So what I'm going to pull up here is appropriations, endowment appropriations.

We're going to guess it's going to be a high number, right? Oh yeah, look at that.

Yeah. So they got $6.5 million and then a $12 million. And let me see how big those draws are relative to their endowment. So remember, appropriations relative to the beginning of the year endowment should stay— oh, wow. Okay.

Yeah.

Yeah. Okay. I'm ready to make a conclusion here. This school's had serious financial problems since 2020 or so. 2019. That's when things went off the rails. It looks like they're using their endowment to cover a net cash deficit from operating activities. And just to remind you, value, net cash margin— well, net cash from operating activities, um, went way south in 2020, right? So they had a $9— $8 million loss, $5 million, so on. And they're trying to cover those with these big draws from the endowment. Really, really clear story here.

And we know what's going to happen when we look at their endowment gains. It's going to be way below what the market is.

Yeah, so let's take a look at their endowment value. End of year endowment value and percent change. Okay, so interesting. Wait, remember things went crazy for them in 2020? Yeah, first year. So, so really, if we look at relative to 2020, it looks like they're a bit ahead of the curve on growth here, but now they've fallen behind. So that's consistent with what we're seeing with those big draws. They may actually be doing I was expecting it to look worse, to be honest.

I was too. Yeah, I was too.

Let's take a look at the returns. Maybe the returns are pretty good. So yeah, their 2020 return is excellent, and that's like top 5% probably. Same with the '19 return. Yeah, 2021 is about normal. This is a massive return in 2020 relative to everybody else. That's a bit low, and then this one's high. It looks like they have a bit more volatile investment portfolio, but maybe has higher average returns, which is paying off for them a little bit to offset these huge draws. But yeah, they definitely have a deficit. Looks to be at least $5 million deficit, right? Probably, probably much more to cover depreciation expenses and stuff like that. Let's take a look at CapEx and depreciation. Yeah, looks like I have a lot of missing values here. That happens if I'm missing either the CapEx or the depreciation values. So there's a ton of checks that I do in the background here. And if it's not perfect, I'd throw the data out, um, and leave it blank. So that's sort of my internal, uh, quality check, right? So if you see missing values, if you're a subscriber and you see missing values, just let me know that if you want them filled in, I can fill them in manually. Uh, I also continually train the AI to get better and better on stuff that I've filled in and other new data. So, uh, chances are these will be filled in over time. But a couple things here. Financially stressed schools tend to not invest in, in their infrastructure at a rate that you would expect, which is to have it higher than, than your depreciation level.

And this was a college that was doing okay prior to 2020. And now it looks like we're probably going to see a series of years where they're below that 1.0 ratio.

Yeah. All right. So the next thing I like to do is get a sense of, okay, we've established they have financial problems, a deficit that's probably about 5. Or more million per year. I could back out the exact number, but I don't feel like going back into that. But you definitely can do that. Um, the next thing that I usually like to do is check if it's mainly a revenue side issue or a cost side issue or both, to get a sense of what kind of policy levers might be useful. And the interesting thing about this I'm seeing right away is that, remember, the years that they've been really struggling are these years after 2020. But their revenue has grown sharply since 2020. I mean, it's up 27% overall relative to—

you know what we're going to see when we look at expenses in a minute.

Yeah. So the revenue growth looks solid.

So I'm suspecting we're going to see something on the big expense numbers coming up. Yeah.

So don't get carried away with your operating expenses, right? I mean, it has to be paired up with your revenues. Operating expenses. Again, not— it's not looking— no, but up 15%. Let me put the operating— oh, remember, we can't really use this again though because there's non-operating and operating expenses in here. So I forgot about that. Sorry about that. Yeah, so this is going to mask a lot of what's happening. So that's really not useful. Well, we can look at net tuition revenue. That's always unrestricted. Net tuition revenue looks like it's down a bit. Yeah, but they've recovered, ironically recovered a bit in the years that they've really been struggling. So I tend to get a sense that there could be an issue here with the expense growth, right?

And look really closely, of course, on this being disguised by their use of the endowment to show as operating.

Yeah, exactly. So the operating revenue is inflated because they're pulling from the endowment. They've got non-operating expenses in their expenses. So, yeah, it's hard to get a sense of what's all happening here, but this is really clear. Net tuition revenue is actually recovering nicely, down 12.5% relative to 2016, but we've certainly seen a lot worse than that, right? Oh, yeah. So, question about the— see what their enrollment looks like on the revenue. Switch gears over to the Looks like their enrollment's way up. Alright, so if you're at this school and you, you know, they're talking about financial problems and they're talking about we have this problem with enrollment, that's, that's totally false, right? There's a lot of enrollment. Enrollment's grown more than probably 80% or 90% of the country. So that is excellent. Net tuition revenue is also going up recently since 2020. Interesting thing. It looks like they've reduced their net price. Let me just see.

I was going to ask about that. Yeah.

Net tuition revenue per student. Yeah. There's a sharp decline here. It used to be a pretty expensive school. Now it's about average, $16K. That's interesting. But, you know, enrollment spiked too. So maybe they did, their price might have been too high back here, to be honest, for enrollments.

Well, you've talked about that before when lowering the price can sometimes increase enrollment. That's clearly what's happening here.

Yeah. And then, you know, so you got to be cognizant of where you're at here. When you're already— when your price is high and you reduce the price, that has a very different impact than if your price is low and you reduce the price, right? Yeah. In fact, you may find nothing happens at all when you reduce your price when your price is already low. I've seen that happen a bunch of times. It's about elasticities. It's also about what, you know, there's a weird market where there's uncertainty about what the prices are. And so everybody has an expectation of what the price is is going to be. And if you're not even close to that expectation, you wouldn't expect it to have a big impact on your enrollment, right? Yeah. Um, so you're just leaving money on the table. Price is low, and then you reduce it even more, you probably won't get a surge in enrollment and just lose more revenue. Um, all right, so this actually may have been a smart move. Things look to be good on the enrollment front. Their net tuition revenue is stable and increasing since 2020, which is great. Uh, let's take a look on the expense side and see what kinds of things we can find here. So remember on the expense side, I have natural expenses. This is pulled out of the audit. So these are— this is the notes from the audit. There's sometimes missing values, and that wasn't required by law until 2019. So you're going to see very few years compared to some of the others. But here's their payroll expense, and I do have good coverage here. At least for the last 3 years. Let's take a look at relative to their student body. Okay, so for their student body size, their payroll expenses look high. And relative to their revenue— but again, that's going to be messed up because they have so much endowment revenue that's non-operating, other non-operating revenues in here. Um, but again, looks a bit high in '23, looks about right in '20 4. But again, the more reliable metric I think for them is this one. It looks high. The payroll expenses look high. See what else we have here. Occupancy per FTE. That looks okay. Depreciation, other. Okay, I'm going to switch into the IRS data. IRS has a ton of information about costs, right? And also employee counts. So let's take a look at the number of staff. Per FTE. And yeah, I think this is one of the problems they're probably facing is just overstaffing. And they probably don't know it, right? It's not obvious, really. I was at a school that had tremendous staffing issues and we had no idea. Uh, even the administration had no idea and in fact wanted to, uh, not believe it. So, um, here is employees paid over $100K. So you've got some upper ends. Earners, that looks high relative to their size as well. Contractors. Uh-oh. Okay. We went from 10 contractors in 2021 to 27 contractors in 2023. That's going to cost a lot of money to just minimum. That's a couple million bucks, right?

And that's just contractors over $100,000. Yeah.

So here's probably one of the biggest pain points for them. And they again may not know this. And this is the beauty of this tool. This is exactly where I would advise them to look first, right? You've got a lot of contractors over $100K just joining the operation, right? Maybe you can explain it, maybe you can't, but you need to figure out why that happened and understand if we can get back to 10, which is about where they were and would be about normal for them. So, right, let's look per FTE. It's quite high per FTE and probably even high for their revenue. Yeah. And again, this revenue is inflated. So I'd look really closely at the contractor spend. There's a bunch of other stuff in here. We have, um, travel expenses, advertising expenses. Um, we have payroll again. All right. Per FTE, it's high. All right. Again, I think staffing and contractors as usual, it's our main pain point for a lot of these schools. Travel per FTE, that looks low actually. So there's a lot of optimization to do here. Let's take a look, a deeper dive into the vendor spend. Elizabethtown— wrong table, contractor table. Elizabeth, there it is. All right, Elizabethtown College. And again, I'm looking for color here. So what this will— this table will show you contracts that are maybe priced higher than normal.

Can you drag that up a little bit?

See a lot of color here. So it looks like, um, looks like I, I see a couple things to explain what we saw a bit earlier. But again, I'm not— you shouldn't just totally discount it and not look into it, right? Looks like they have construction going on, which is probably the partly explaining, at least partly explaining the surge in contractors. Um, but that doesn't mean you shouldn't look into it deeper, right? Take the construction contracts out and double-check the other contracts as well, make sure that's not going crazy. Um, this landscaping contract— sorry, yeah, yeah, these are, uh, so this landscaping contract looks a bit high, and then there's a whole bunch of construction contracts. The marketing contracts looks good, whole bunch of construction contracts.

All right, we've seen a lot worse, a lot more color on colleges that are not doing it.

Yeah, so, um, generally this is a little bit trickier because you have a couple things that could explain what we're seeing. One is the Construction, of course. Um, the prices on these contracts that I'm looking at don't look overly, uh, outsized, oversized, or anything like that. Uh, but I think it's still worth your while to go through all of these and just double-check that we didn't sneak in a bunch of contracts that we didn't need, right? Um, still think it's worthwhile to do that exercise. A lot of folks would just say, hey, there was construction, and then just like not— I'm not going to do the work. I think that's a terrible idea. You should definitely do the work. It's not that hard.

Well, the work is hard to do unless you have a tool like the Advanced Compass.

Yeah, you know, I mean, we still have the motivation, right? I showed you their number of contractors. So I mean, you can do some really quick calculations here. Contracts over $100K. I mean, you get paid a lot of money to do this stuff. So honestly, I don't think it's a good excuse to just like guess that, okay, construction explains it and then not check it. All right. So they had 10 in 2021. They have plus 17. All right. Even if you're doing a lot of construction, it's hard for me to believe that you'd have only, only construction, new construction contracts that are 17 new ones that are over $100K. That's a bit odd. So I double check again. I think it's worthwhile to check all those contracts. And then of course, if you can't get the money to balance your budget out of that, where are you going to look next? Staffing, right? I showed you their payroll costs were high for their size, and then, and that's probably going to get you to a balanced budget. But there's a lot of other things to check in here. All right, hopefully that helps with this school to understand what's happening. Honestly, the revenue side looks quite good for them. So that's good. They're growing enrollment. Probably did some nice pricing adjustments about 5, 6 years ago, and that's paying off now.

So it was last fall, Matt, that Elizabethtown College was in the news with some cutbacks and layoffs, as I recall. And so what I, what I typically do when I see those kind of stories is I add them to my Google Alerts. Interestingly, really, since those few stories back in the fall, all I'm seeing is, is news about events at Elizabethtown and obituaries, of course, comes up from those Google searches. So I really haven't seen anything in the news since then. So a couple of things could be happening. Our data is through 2024. We saw on the Advanced Compass, and we'll see through 2023 here in a second. But it's, it's possible this college is doing the right things. It's also possible that, like we have seen other places, that the transparency is not what you and I would like to see. There may be some things going on behind the scenes that might suggest we'll see Elizabethtown pop up again in the future with some financial issues. What are your thoughts on that?

Yeah, I think you're right. I mean, it's possible that they've fixed it, but it's hard to imagine unless they did, you know, serious rework of their vendors and staffing, which I don't know if you saw that. And you probably see that in the news, at least the staffing changes would definitely be in the news. They may not have fixed it yet. I mean, they just have done a few things. And still have a deficit.

And, and you mentioned a couple times during, during your showing of the Advanced Compass that I think it was staff and contractors. And you said it's, it's tough to figure those things out, Matt. That's probably because most colleges like Elizabethtown don't look at the comparisons. They stay so parochial, so focused on their internal data, they have no comparison mechanisms.

Yeah, exactly. So I'll just say vendor, one of the hottest areas in consulting right now is actually procurements. Analysis like I just showed you. Yeah, I get asked to do a lot of procurement work to just get a sense of what does a normal procurement look like for the X school, X, right? And these are usually massive schools that have tens of thousands of contracts over, you know, a couple of years over $100K. And this is really massive enterprise, but even these small schools can benefit from that. It's even probably more important for them to get it right, right? Because, yeah, they don't have the— most of these big publics can.

Let's take a look at Elizabethtown from Pennsylvania on the 2025 College Viability App. This is the executive analysis version, and what I've done is I've brought up all the private colleges. I could have brought up, brought up the publics, all the private colleges in, in Pennsylvania, uh, and just the, uh, for just the state of Pennsylvania. And what we can do is we can go down here, look at and see how Elizabethtown compares. And again, the data we're looking at here is from 2016 to 2023, and we can see we start off with 4-year graduation rates. And I won't get into my sermon on graduation rates for Elizabethtown because, to their credit, Matt, not a bad number, not a bad number at all. Pretty good numbers, as a matter of fact, compared to most private colleges. So again, Elizabethtown falls in that category of maybe financially troubled. They're hiding a lot of the revenue with the endowment draws. So we really can't tell, but at least they're graduating students. And let's take a quick look. I'm guessing that when we look at retention and then look at Elizabethtown for retention rates, and again, pretty good numbers, you know, pretty good numbers throughout the organization. Let's take a look at their institutional grants. Let's take a look at the institutional grants, the unfunded institutional grants. And Matt, you and I would call these merit aid and most scholarships. And interestingly, you can see Elizabethtown highlighted in the gray here. They have brought down their unfunded grants almost $12 million over the last 8 reported years. So clearly they recognize that those merit aids were a negative issue for them. And like you saw, their net tuition revenue's up. And again, this lends credence to the fact that they're doing at least some things right in terms of managing the, in the case of merit aid, managing that pretty well because you can quickly—

I wonder if they did a reset, a tuition reset, because we saw that their net tuition per student felt reduced, right?

Right.

Like they reduced their net price, but then you're showing here that they reduced also their aid. I wonder if they reset their sticker.

Look at, look here, 2019 and 2020. That's when we started to see things change on the Advanced Compass.

Yeah, I think they probably returned to less than $20 million. They might have reset their sticker.

So, you know, you're right. I bet that's what happened. I don't recall seeing that though for Elizabethtown.

Yeah, but again, it would be, I think, incorrect to say that the tuition reset helped them because what actually they did is reduce their price with a standard tuition reset. You don't actually change the price. You just change what it looks like.

Change what you call it.

Yeah.

Yeah.

So, yeah, folks like to look at Concordia.

Last one we'll look at for Elizabethtown is tuition and fees over the last 8 reported years. And again, they're down, which makes sense. For a lot of ways are down, um, $8 million and change over the last 8 years. So it all ties in logically, and it's not going to change our assumption because when we look at that, it's just not— it's tough to call that. So we always do the assessment here. We have 4 categories: sustainable, sustainable with concerns, unsustainable with a long runway greater than 5 years, and unsustainable with a short runway less than 5 years. Where are you going to plug Elizabethtown College into that, Matt?

Well, clearly unsustainable because they have deficits, right? And they have, but they have a $100 million endowment. So I'd say, yeah, unsustainable but long-run way.

So as we wrap up this show, like we do in most shows, this is the Moneyball era of higher education. Matt Hendricks uses data. Gary Stalker uses data to compare colleges. Use the comparisons, don't use comparisons, but think about it in—