A Financial Health and Viability Review for Franklin and Marshall College (PA)

It is the last Tuesday of April 2025. Spring has arrived in most of the country. Welcome back, everybody, to the College Financial Health Show with Matt Hendricks and Gary Stock, where each week, of course, we look at the financial health and even the viability of private colleges across the country. We're leading off with a college in Pennsylvania, Franklin and Marshall College. And Matt, as I turn the show over to you, they had a layoff announcement earlier this month. They're laying off 16 staff. What do we know about the finances at Franklin, at Franklin Marshall?

Yeah, let's, let's start from the beginning. I'll get to the staffing part at the towards the middle end part of this. But let me show the Advanced Compass and kind of bring us up to speed here. All right. Franklin Marshall. I'll say my, my general thought on this school is that they, they do have deficits. So it's good to see that they're responding to that, but they're pretty small. and I'm not worried about this school, but they're responding to a deficit, of course. And so here's, here's the evidence for why I think the deficits are small. They are very small, less than -1% in 2023. Net income margin, again, about a -1%, it's 0.7%. Not ideal, of course, but probably it's not a catastrophic loss, and I bet their cash flow is quite positive. Because again, net income margin is pulling out depreciation expense and stuff like that. So they probably easily have enough cash to pay for everything. I could check that real quick, but there is always the risk that they, they pull out their endowment draws. So they do have a negative and a positive. So there's something quirky here with the cash flow. Yeah, I don't know if I want to dive into that a lot, but a plus 32% net or $32 million. That's not percent. This is million. By the way, I made some changes here. You can do everything. Yeah, I like them. I like them a lot. change per $1 million in operating revenue. In this case, it doesn't really make sense to do it, um, per FTE because it bounces around a lot every year. But $32 million plus minus $7 million plus $1 million, I'm not worried about that. They clearly have a lot of cash. Um, so let's take a look, uh, at, at their endowment draws on the bottom here, their endowment growth. So their endowment's growing a little bit slower than normal. I suspect they may have appropriation issues. Let's take a look at that. So I'm doing percent of appropriation relative to the beginning of year endowment value, and this is something that should be addressed. Um, they may not know this, but even a small difference here in this appropriation percentage every year can have a big impact on how your endowment's growing and probably explains a lot of why their endowment's growing more slowly than everybody else.

They're pushing that 75th percentile mark there too.

Yeah. This is a 5.3% draw, and you can see historically this is pretty common. Actually, schools just assume maybe this is normal. This is not normal. Again, this is in the top 25% in terms of percentage draw, and it's not, not ideal. Again, hopefully their plan is, if they know about this, you know, they're reducing staff, reducing costs, and going to bring that appropriation back down to 4.5% or so, which is normal. 4.4%. Um, so their deficits are bigger than what I'm seeing because those draws are too big. Um, their operating revenue is pretty flat from what I remember. Yeah, so it's actually down a bit. I guess it depends on where you're picking it from, but relative to 2016, you can see their operating revenue is like zero, really flat.

Yeah, really flat.

0% change since 2016, which is not ideal.

Again, that's, that's over 8 years.

That's, that's not— yeah, and tons of inflation over that period. So a typical school is up 18%. So that's not ideal. Let's take a look at what's happening on the revenue side with net tuition revenue. Because as you know, that's usually the biggest source of revenue. Let's do percent change here. Yeah, okay, so same story with net tuition revenue. Actually, here's again, Gary, we've got our or, uh, what we would— we should call this something. It's got momentum, right? And moving to a new steady state, we see this over and over and over again. Probably something happened here in 2021, '22, or sorry, 2020 or '21. Obviously COVID happened, but there should have been a recovery post-COVID here, right? Um, it didn't happen. In fact, normal schools only had a small blip on their net tuition revenue.

We've seen a fair number of colleges, Matt, it's just they compared to others, they have not recovered well from the COVID years.

Yeah. And some of it, I think, is they're just not responsive to what's been happening in the market. A lot of schools have been very proactive, uh, since COVID and making it easy to apply, getting rid of all the sort of barriers it takes to get into the school, becoming less selective and stuff like that. And if your school misses the boat on that, um, it could be a problem. So there's net tuition, right? That could be it. I'm just guessing. But again, you can see this stuff on a strategic compass pretty clearly. You get clues as to what the problem is here. But my guess is something happened back here that's not related to COVID that's causing this to continue to move to a new steady state, which is lower. One thing that's interesting though is their— so their price, it looks like their per-student average price went from $29,000, about $30,000 or so, to $35,000. So the price seems to be quite a bit higher. And so what we're going to see here, since the price is so much higher, they had to be losing a lot of students. So let's take a look at students in order to have a flat net tuition revenue. And yes, sure enough, yeah, enrollment's down 16%, right, exactly starting at 2020. All right, um, so some things just based on my experience to look at here is you've got an increasing price, decreasing enrollment. You just wonder if the price is too high. For one, a big, uh, a big giveaway for that is if the yield rate suddenly fell when the price was going up.

I'll take a look at that when I bring my stuff up.

Yeah, take a look at their yield rate. If the price is too high, you're going to see a tiny yield and a yield decreasing faster than other schools. So that could be a problem. Again, they may have missed the boat on just making it easier to apply and stuff like that. And you can see that here as well. So again, really interesting case. I think we had a case like this last week where students are paying more, but there's fewer students coming, right? And this is basic supply and demand economics. Potentially, potential explanation could be that the price is too high. I would take a really close look at the the aid formula.

But you're going to see when I bring up the 4-year graduation rates that Franklin and Marshall does really well. They graduate—

yeah, probably, right? They're paying a lot to go there, right? And those kids tend to graduate, the kids that can afford to pay a lot. Um, but yeah, some of it's probably the school's probably quite good school. Um, all right, so another thing I flagged was the CapEx. I mean, obviously there's— you're seeing financial stress here. Um, schools that go many years consecutively having a higher depreciation rate than they're replacing the capital with their CapEx spend, which you see here 4 years in a row. Ideally, again, this should be about 1 or higher, and that's what the typical median is. It indicates financial stress in some— in a lot of cases, right?

You see that, and we've talked about that before, Matt. One of the visual results of this is you start to see cracks in the sidewalk, holes in the roof, mold on the wall. Now, that may not be the case at Franklin Marshall, but example, if they're not investing in infrastructure, those kind of things would be what you would actually visually see.

Yeah, so it's a red flag if they're doing that for many years consecutively. Another explanation is that maybe there's just a bunch of new buildings, right, and you just don't have to, you know, repair much for a while. But, um, you know, you have to figure out the context of what's going on. But it's hard to imagine that it would all be attributable to new buildings. It's probably some maintenance here. I wanted to bring this up on the revenue side. I see some maybe things to flag here, right? So this is what I do, right? Like, look for things that look odd and see, you know, look into it, right? That's all I'm asking. And so here's the thing, right? We're losing students since 2020. And take a look at what we used to spend at Franklin and Marshall. It's a really low spending amount on advertising, by the way. $200,000 is very low overall, and per FTE, that's incredibly low. So one thing that's interesting is the advertising spend is very low, and there was a sudden drop-off in 2022. It appears we went from being up— like, there was a significant investment, although it's low, right, in advertising relative to 2016 in these years— and then a sudden drop-off a big drop-off of like 45% or so, sort of aligning with when they're struggling with enrollment. I just wonder if this is just partly— part of the issue with enrollment could be related to advertising. But again, this could be just somebody filling out the 990 incorrectly as well. So double-check this stuff, right? This— these are— at the time, like I'm saying, right, you might, you might find it's just an accounting error, which is important to fix, but you might find that this could be the cause of your enrollment struggles, right? Just really low advertising spend. On the expense side, all right, we talked about— so you mentioned that they were cutting employees, and you can kind of see already that they've been doing that for a while, right? Yeah, their number of employees is down 18%, so they're actually doing a good job of sort of matching their number of employees with FTE enrollment. It's actually holding constant And it is high, right? So there is some motivation for that. But the one thing I like to look at here is, you know, if you're a rich school, you can afford to have a lot of staff and maybe that's part of your, your selling point. But so overall, their staff relative to their operating revenue looks about right. So that's what I wrote down in my notes. Staff looks fine, although I did flag staffing for folks that make over $100K. Now that doesn't look right. So I have employees paid over $100K, and if you do it per operating revenue, it's above the 75th percentile. So this school's in Pennsylvania.

They pay well.

Yeah, they pay. So it's not that they're— so they have a lot of staff that get over $100K, right, for their size. So a better, a better way. What's that?

What's the raw value on that one?

Yeah, they have, so for every million dollars of revenue, they have one staff member over $100K, it looks like.

Right. Click on the raw values. I wanna see what that actual number is.

Raw values. $130K.

Oh, $120K. It's okay. Yeah. $130K.

$133K. Okay. So here's the thing. So you can add comparison schools here. Like I can add a, another school from Pennsylvania. I'm not sure which one to grab offhand, but I'll just grab Arcadia. And you can see how you compare. Again, I'm not sure if Arcadia is a good peer. That's again, Strategic Compass analysis, find good peers, and we bring in yourself-identified peers and stuff like that. But this is the kind of analysis that they need to make here and do it relative to revenue. And you can see again, the story is the same. They're, they're really high. Even higher than Arcadia on staff relative to their revenue, number of staff over $100K. I have another way to look at this as well that I just brought in from the 990s, compensation of current officers and directors. And again, it's the same view, it's really high. This is amount of spending, and we can do it per revenue. It's higher again.

That is for employees of the college, not for board members and stuff like that, right?

Yeah, the board members usually get zero. So it says current officer compensation. So this is going to be your VPs and such. So yeah, it looks high there as well. So several pieces of evidence here to check into the staffing, particularly for the staff making over $100K. So hopefully that's what they did with their job cuts that they announced. That's what I was going to say.

The data.

If they're cutting a bunch of folks under $100K, that's a bit questionable given what I see here on the data.

But, and the list was a very— it was not a high compensated list because I looked at it earlier.

Yeah, that's, yeah, something worth looking into, right? They need to look at those high-end paying jobs. That looks to be a bit out of whack. Contractor usage looks low. I know I'm running a bit out of time here, but I'll show you Fees for services is also a new one. Total fees for services, again, from the 990s. This is going to be mostly contractor spend or all contractor spend. Again, super high.

Yeah.

And I'll take Arcadia off here just to keep this clean. Well, Arcadia is like off the charts, but the— I was going to do per FTE, it's really high. And then per $1 million. All right. And it's been high for a long, long time. So again, looking to cut make your budget work, you probably should look at these vendor contracts as well. And I'll just say, um, you've seen it on the show a bunch of times, their food service contract looks really high. Uh, and then in fact, I can show you a line graph that might be interesting that I don't always show. So this is their food service contract per FTE, and it's at— they're paying about $3,900 per student, and typical is about $1,700 per student. Again, just out of whack relative to the revenue, relative to the size of the school. I would look really closely at that food service contract. They also have a really expensive health services contract, which is not common. I would look deeply into that as well. It's over $1 million. And you can subscribe to this and see these contracts down here. But I'll let you do that on your own. Uh, but I'll pass it back to you, Gary. I probably went too long on this one school. It's a lot of interest.

And as you switch it back over, for those watching live and for those watching the recorded version, um, there's a new tutorial out that just was released on April 28th that shows the new changes that Matt has made and talks about the vendor table as well. Um, I think the first thing I want to show— I was— I'm going to grab that, uh, and here's the— here's the positions eliminated. All right, you can look at that as on your own, but Matt, I'm not seeing any high-level There's a couple director-level positions here, one VP. So of those 18 positions, 3, maybe 4, are at the director level. The rest appear to be below that kind of level. So again, you know, this is research, and, and the data that Matt showed you, the data I will show you, lets you ask questions. And I'll steal Matt's phrase— he says he's always looking for what's weird. Yeah, well, that must be how they look at in Oklahoma, and that's fine, but that's exactly right. You're looking for things that are strange. And let's, let's take a quick look at the 2025 College Viability App. We look at graduation rates. As I shared earlier, Matt, they're doing well. They graduate students, as we're going to see for all 3 colleges today. They're doing a pretty good job with that. And as I've shared before and I'll share again, it bothers me that colleges that even do a good job, like the 3 you see on the screen, graduating students still face financial issues. And Matt, we want to look at the admissions yield for Franklin and Marshall. And it's down 6 points. It was 25, uh, 25%, 25 out of 100 accepted back in 2016. It's down to 19 now.

Hmm, I wonder if then it could be further up the funnel, then their apps are low. You might take that.

Great, great point, great point. And, and generally right now we, we make the, we make the point that admissions yields are down most places because with the Common App, it's, you know, I tease all the time that that it's just as easy to order an extra ingredient on your pizza as it is to apply to additional college. So a lot of students just apply to more colleges kind of as a throw the mud against the wall kind of approach to see what happens. That impacts the admissions yield as well. So let's look at market share, and let's look at market share for all of the private colleges in Pennsylvania. So let's grab Pennsylvania, and this is a, this is a new app that we use to see where colleges are doing well with majors they're offering and where they're doing not so well. Let's take a look at just private colleges in Pennsylvania, and let's take a look at bachelor's degrees. And let's just grab a common one. So let's grab accounting. What we see in the state of Pennsylvania, private colleges, there are 61, this is one major. There were 1,200-some-odd completions in the year 2023. You can see it is a— how do we describe this, Matt— a diverse set of colleges offering accounting degrees. And we look at the numbers, small numbers here. I can even get a bigger picture. We look at the small numbers here and say, I wonder, sir, if the colleges have small number of majors offer as strong a programs as those colleges like Drexel and like St. Joseph's University with strong completions. There's two ways to look at these majors completion. One, if you're inside a college, if you're a provost or academic leader, dean, do I have strong market share? And if so, can I grow it? Also, can I find colleges with weak market share Waynesburg University. We talked about them last week. See if there's an opportunity for revenue sharing for me to offer my accounting to colleges with small market share for students and families. And there's a student family version of the College Majors Completion app. You can decide, do I want to choose Waynesburg, which has 5 majors in 2023, or someplace with more majors that are probably logically going to offer better accounting programs than those smaller colleges? So, Matt, let me turn this off. Let's talk about Franklin and Marshall. You made some good points on, on their finances. Sustainable, unsustainable? How would you rate them using our system?

Well, I mean, right now they have deficits, which, you know, it's not sustainable forever, but they can go a really long time with the small deficits that they have. Um, they're a bit bigger actually than what their audit shows because the endowment draws are big and kind of hiding some of that. But, um, Yeah, they have plenty of opportunities to fix it, and it sounds like they're doing that right now.

So you just got done watching the financial health and viability review of a college you're interested in, a college you want to follow. And you heard Matt Hendricks, you heard Gary Stocker talk about some of the observations that the data that you see, both in the Private College Advance Compass and in the College Viability apps and the College Majors Completion apps, it's the data you can use to make more informed decisions. Now, can you get this anywhere else? I don't know, Matt, that this kind of data is available anywhere else, especially at the rates that we have. So drop me a note. Again, I'll have contact information in the show notes. Drop me a note if you have some interest. Let's do a dog and pony. Let me show you the apps, um, more specifically to what you want. Let me show you the Strategic Compass, which is a phenomenal tool at a price that is so low that you will want to buy two of them. I'm being silly, but they're, they're great great tools, and you're going to find your competitors using them. And if your competitors are using them, you're going to find yourself at an even more competitive disadvantage because they're going to have data to make decisions that you aren't. So for Matt Hendricks, I'm Gary Stocker. Thanks as always for watching the show. We'll be back next week with 3 more colleges to review on the College Financial Health Show.

We'll see you then.