Wed 20 Jan 2010
My topic was supposed to be Williams’ Year End 2009 financials. I had already done a detailed review in this blog entry and was hoping to add something new.
Specifically, I thought that Amherst would release their financials, but they apparently have decided not to (I don’t blame them, if my college’s results were that bad, I’d hide them, too). I was hoping to provide some analysis of Williams cost-cutting plans. By now, Williams has almost certainly put in place the outlines of major budget cuts over the next few years. Swarthmore is cutting roughly $5,000 per student ($7 million a year total). I have every reason to think that Williams target will be in the same range. Those are significant cuts. Alas, the school really hasn’t provided information, so that plan went out the window.
Instead, I’ll present some comparative data of key financial indicators that are used by colleges in assessing financial strength. Here’s a table of Williams and selected peer or near-peer schools:
The first thing to note is that all of the data is presented on a “per student” basis, thus allowing direct comparisions. These numbers are derived from the totals in each school’s financial reports divided by the enrollment number. You might want to right-click and open the table in a new window.
Tuition is the sticker price for each college. Add this to the room and board number to get the full-fare sticker price. There isn’t much variation here. Grinnell was the last among this group with a lower cost strategy, but they are in the middle of phasing in higher prices to match the going rate. Williams was a thousand or two on the low side, but a larger increase for the current year has brought the sticker price up into line. Few colleges have wanted to go over the $50,000 barrier in a recession.
Financial Aid is a hugely important line. This is the average price discount offered to the average student, i.e. total price discounts divided by total enrollment, aka “the discount rate”. There’s an odd knee in the curve here. Mid-tier colleges have to discount heavily to fill their classrooms, then near-top tier schools discount less (see Haverford and Bowdoin) to maximize revenues. Finally, the very big endowment schools discount more heavily, primarily for diversity. Williams discount rate is higher than its peers; the difference being the very large price discounting to attract international students. My educated guess is that there is considerable pressure at Williams to bring this number down. There is upwards pressure on financial aid over time and it will be hard to meet the cost-cutting goals without addressing this number. I think there is a good chance that Williams backs off the need-blind for internationals. I believe the new book policy, ending the $800 per year award, was intended to reduce financial aid discounting incrementally and get back some of the cost of no-loan, in the same way that Swarthmore is increasing its summer earnings expectation.
Total Student Revenue is the sum of all these parts: sticker tuition minus discounts plus room and board. This is obviously a fundamental financial number. It will tell you a lot about a school. For example, you can spot the schools, just below the top tier that play a tuition maximization game. Sure enough, schools like Haverford and Vassar have long-standing reputations as “rich kid” schools. Here again, Williams is bit low on the per student revenue. I expect the budget planning to bring this number up, as we have seen with a larger than average sticker price increase.
Spending Per Student is self-evident. It is total operating expenses divided by the number of students. So Williams spent an average of $85,000 per student last year. These numbers do tend to float up and down a few thousand from year to year, so I wouldn’t look at small differences. However, I think it is easy to see why the top ranked schools are the top ranked schools. They spend more, hire more professors, offer more stuff, have nicer digs, and, logically, attract more consumer demand.
Endowment and Endowment Loss are no mystery. The first is the per student endowment, probably the single data point that would best serve as a proxyfor the USNEWS rankings. If you told me to pick a liberal arts college based on one data point, this would be the one. Endowment loss is the percentage loss during the market crash year — investment losses minus spending draw plus endowment gifts. Williams did fine here, actually moving up the list one spot as Grinnell took a real beating over two years. Haverford and Wesleyan got clobbered.
Endowment spending is the draw from the endowment used for operating expenses during the year. One of the key indicators used by colleges is the spending rate. This is usually based on a rolling 12 quarter average and should be no more than 5%. Colleges that are running 6% or higher are spending down their endowment and considered to be “out of equilibrium.” What I have done here is take the 2009 spending and apply it to the 2009 ending endowment, so this would be the spending rate for 2010 if there were no budget cuts. For example, Swarthmore shows 5.1%, but there are spending cuts so the real number will end up being 4.2%. I’m sure that Williams is also looking at budget cuts to bring its number down as well. The cuts were already budgeted before the year end market recovery eased the pressure. The schools here with spending rates above 7% are facing some harsh and immediate budget cuts. That percentage is simply not sustainable.
Next are two numbers I added to my spreadsheet this year for DKane. Total debt and debt as a % of endowment. Again, Williams is ht there with the best in breed. I would point out a couple of exceptions. Grinnell has very low debt. They pay cash for a lot of their construction. Haverford and especially Wesleyan have very high debt.
This is David’s number, net endowment value after debt. I agree with him that this is really the number we should be looking at when comparing endowments. Interestingly, the order doesn’t really change that much.
And finally, I’ve included the private equity cash call commitments. These are dollars contractually obligated to be invested in private equity funds over the next few years. These can create significant liquidity problems. Haverford, Bowdoin, and Wesleyan are the only three in this group where the cash calls are a significant percentage of the endowment value. Williams shouldn’t have any liquidity problems for the foreseeable future.
As far as impact on the new President, I don’t see any for a while. The financials are good and improving with the market. The budget cuts required over the next five years are significant, but will have been finalized before Falk arrives. He’ll rubber-stamp them. The biggest issue at Williams will be the library project. I don’t see that being started in the near future as it would require another $5 million in annual offsetting budget cuts, but I could be wrong.
28 Responses to “CGCL VI: 2009 Financials Comparison”
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