This is very interesting!
To be honest, their balance sheet and accounts looked okay unless looked in depth. I mean, they were diluting equity consistently but their debt was very much under control, consistent topline and bottomline growth, their CFO for 2015, 2016 was very decent (was a problem in 2013, 2014), management was considered to be very honest and forthcoming, presence of many reputed investors, okayish receivables (increased from 2016), regular dividends. Most of their ratios were pretty decent. There sheer visibility in every city was a big soother and brought conviction about the investment.
Main reasons for failure - Consistently high working capital requirements (working capital/sales), extremely high capex (too much expansion), consistent negative FCF, low ROA, low ROE, pledging, paying dividends despite being a negative cash flow business.
Education sector is considered to be a cash intensive, so one could have assumed them to be in expansion mode (reasons for huge capex). One usually sees CFO but ignores FCF in growing companies. This was the case with Treehouse. This was a very carefully dressed Balance sheet where debt was kept under check and dividends were given.
Case in point - Just thinking about what should one look at while investing to bypass such companies? This was actually a high conviction bet for many. If one looks at FCF when the company is growing, even Force Motors doesn’t quality as investment (abysmal EPA), but is a good business.