Software maker eCollege (NASDAQ:ECLG) turned in its final earnings papers last week. So did it pass or fail? Well, that depends on whether you're willing to grade this one on a curve.

Taken straight up, it's hard to call last quarter's news -- or all of last year's for that matter -- anything other than an abject failure. The firm lost money in Q4 ($0.10 per share), just as it had lost money all year long ($0.28). Of course, if it's all the same to you, management prefers you not look at those numbers, and instead grade this on a curve.

Poetic. But what exactly does that mean?
Pretty much the same as it means in high school. You lower the standard of perfection, and then grade against the new standard. In eCollege's case, management would like you to ignore the results of its struggling Datamark enrollment business, which continues to lose money and, in fact, was solely responsible for the quarterly and full-year loss last year. Instead, we're asked to focus on the firm's eLearning division -- and actually, that's not such an unreasonable request for investors, seeing as eCollege plans to sell off Datamark and continue as solely an eLearning shop.

So let's do that. If we consider eCollege nothing more than an eLearning division (with an enrollment chaser), then the firm's continuing operations earned A's for both the quarter and the year. For the quarter, eLearning scored a solid 95% -- an A by any measure -- worth of year-over-year improvement in net profits from continuing operations, $0.11 per share. For the year, $0.35 per share in profit equaled another A, 94% improvement. In both periods, eLearning grew its revenues 26% year over year. Even better, the firm's cash profits backed up these accounting profits results, with free cash flow (which I calculate as operating cash flow minus capital expenditures and capitalized software costs) coming in a solid 25% higher at $15.5 million for the year, pretty much mirroring revenue growth.

Earnings and revenue guidance were solid as well. CEO Oakleigh Thorne said he felt "very comfortable with our first quarter and 2007 earnings guidance" issued in January (which you can read all about in last week's Foolish Forecast.) In contrast to rival Blackboard (NASDAQ:BBBB), which upped its guidance last month, Thorne's statement amounts to just a reiteration of past guidance. Still, seeing as the firm is predicting continued double-digit growth in both revenues and earnings, I doubt investors will have any complaint with that.

Extra credit reading available in:

Blackboard is a Hidden Gems recommendation. If you're interested in small-cap companies with great potential, take a free 30-day trial to Hidden Gems. The service is crushing the market, so there's never been a better time to try it. Just click here to start your trial.

Fool contributor Rich Smith does not own shares of any company named above.