BUSI 170 - Financial Analysis for Leaders (Section 1.2)
August 19, 2026
Doing financial work is a lot like writing a screenplay. It just happens to be a very useful one. There are rules, and the rules help an audience follow along and understand the story.
All financial statements, all numbers, tell a story about a business. They reveal what is going well and what is not, and where that came from. Learning to read them like a history, to see where things have come from, gives you insight. It also moves you quickly toward the right questions to ask.
Here is something amazing about financial statements. They work as a universal principle across industries.
Economic activity is messy. It is a human thing - interacting with people, trading with people, creating value. All of it runs on human perception, human activity, human behavior. And yet there is a single framework for classifying and categorizing all of it, in one common language, across every kind of industry. Education, manufacturing, distribution, creative work: the same language.
I think about the periodic table, which was a structure that ordered something creation had already made. There was a distinct order there waiting to be found. Financial statements are the other way around. Somebody built this conceptual thing, and it applies across all of it. That is masterful.
What this course gives you is a tool for translating that language into insight. Not just reading the statements, but seeing the story behind the numbers.
Let me give you one.
I worked with a company that made rolled aluminum products. They take metal and roll it thin. Thin aluminum is the stuff you see in your kitchen - flexible, wraps food. Thick aluminum is what those foil containers you put leftovers in are made of. The only difference is how thick and how rigid it is.
Thin foil is priced much higher, and for a good reason. Imagine two big rollers with aluminum coming through. To get it thin you have to run it through many more passes, delicately, at high speed. That difficulty is why the stuff gets priced so high. And thin material breaks and crumples and fails, and then you have to restart the whole machine, so you eat the downtime too.
So someone looked at the financials and said: this thin stuff is really high priced, it must be more valuable, we should produce more of it. Let us find more of those customers, shift the product mix, spend less of our time on thick foil.
Here is what they had not done. They had not asked what it cost, or how long it took.
The thin foil was priced around three times higher than the thick. But the time it consumed on the machine was not three times. It was five times. We only had one set of rollers, so making one product meant not making the other. The right question was never revenue per roll or price per square inch. It was profit per hour on the machine - because the machine hour was the scarce thing.
Run the numbers that way and the answer flips. Even at a lower price, the thick foil made more money, because you could run so much more of it with far fewer passes and far less waste. That plant manager was about to prioritize a product that was priced higher and would have made them less. We found it before the product plan was set.
That was a special day for me. It was financial information translated into something I could see with my own eyes on the factory floor, and it changed a manager’s mind, changed a plant’s priorities, and changed how a company did business.
Sometimes what is going right or going wrong is hidden in the financials, but hidden in plain sight.
Here is one. Look at a balance sheet where asset values are high and accumulated depreciation is also high. That means the equipment is old. The company is running, but these things have been around a long time, and either they will start breaking down or somebody is going to have to spend a lot of money replacing them soon.
You will never see that on the income statement. There is no line that reports the age of the machines, and there are many machines in a plant. All you do is take the total value of the assets, which tells you what was paid for them, and the total already depreciated, and take a ratio. Now you have a rough average age of the equipment.
That is what I mean about detective work. Financial statements are not all just adding up math. They contain assumptions, estimates, and judgment calls, and those judgment calls can lead to different pictures. We often do not talk about the assumptions that go into the numbers - we just proceed as though everybody knows them. You need to know what they are in order to interpret what you are looking at.
When I open a set of financials I start with the income statement, because performance is intuitive and it is what we are always looking at in a business. How much does it sell, which is revenue, and how much does it make, which is profit. Everything in between is the cost of running the business. That gives you a quick sense of how much value the thing is creating.
Then the balance sheet, which tells you the total amount of stuff you had to have in order to create that.
This second step matters more than people expect. Say a company’s bottom line is one million dollars. A million feels like a lot. But if it took a billion dollars of assets to earn it, that is terrible performance. You have to scale the profits against a key question: what did you have to invest to get them? The balance sheet is where you find the answer, along with who owns what and who is owed what.
Finally the cash flow statement. A lot of assumptions go into booking things on the income statement and balance sheet, and the lifeblood of every business is cash. Cash comes in and cash goes out, and what is actually happening does not always jump out at you from the other two. The cash flow statement shows you those flows for operating the company, making investments, and financing it.
Three statements, in that order.
Large companies can be run more professionally. They can rely more on running things by the numbers, operating by the instruments. But financial literacy is not only for them.
Small startups often need financial insight even more critically, and they are often run by people who are amazing and who have far less access to it. Bringing financial insight into a small business can be more powerful precisely because it is scarce there.
The same holds for nonprofits, where it is all about resource management. Financial information shows whether we are using resources well against our goals, and it does not matter whether the goal is profit.
In fact nonprofits carry double the challenge. Nonprofit does not mean it is fine not to make money, or that money is beside the point. It means the organization exists to do something else - it has a mission and it has to accomplish it. But to survive, it still has to generate enough value, or attract enough resources, to keep going. Financial viability is not optional for anybody. Value creation matters to every organization, profit-driven or not.
Get good at reading this and you get a different seat at the table.
I have watched it in board meetings. There are always some executives who are not comfortable with financial information, so they do not talk about it much. They stay away from it. They are mystified by it, even intimidated. And that limits what they can convince anyone to do.
Leaders who can interpret this data become influencers rather than contributors. Contributors come up with ideas, but they cannot be decisive. They voice opinions. They speak to one side of a question. They do not claim to have the whole picture and they do not make strong claims about what we should or should not do relative to the alternatives. An influencer can. They have the whole picture, they understand the implications of multiple pathways, and they can compare those pathways legitimately and select the best one. That changes what people actually do, not just what they think about.
People ask me why they cannot just outsource this - find a good partner, rely on an accountant, and focus on the big picture. You still need to know enough for that accountant to talk to you and for you to respond. It is unwise to delegate financial analysis entirely to a supporting cast of experts; that makes you vulnerable to half-truths and misdirection.
Leaders who do not understand accounting are walking blind in one of two ways. Some run everything on vibes - a business idea that feels right, a narrative, an anecdote about why this one is different. When you try to compare it against something else, it is one story against another, and both can sound good. You end up trying to work out which story is more inspiring rather than which one produces more.
The others have accountants but cannot read what they produce, so they have to trust that somebody else is handling it correctly. Maybe there is a mistake. Maybe the accountant does not understand what you understand about the business. They live with that uncertainty and unease, never sure the decision is right.
When you can read it yourself, it is like putting on clear glasses and seeing the world as it is. You are more comfortable with your decisions because you can see the impact coming, in behavior and in the numbers. That is world-expanding. You can tell which opportunities are the best ones, how to choose among them, and how to track whether your hunches were right.
One more, and it is small enough that it stayed with me. I was walking through a plant and I saw immediately that something was wrong. It was a lack of activity. You look at a line that is the heartbeat of how the place makes money, and it is stopped. Why? A part was missing, or there had been an error and nobody had come to fix it yet. All I could think about was that every minute it sat there, this place was not making money.
It was easy to explain why things were not moving. There were reasons. What struck me was that nobody was putting a price on each minute that passed. It turned out the line was down because we were short some parts, or we had bad ones, because somebody was trying not to over-order. We were saving a few dollars on a part and losing minutes in which we could have been making millions.
Before we go any further, try these. You are not expected to know the answers yet. The point is to find out what you already assume.
Bella’s Beverages. Bella sells iced teas and lemonades at a local market and earns $3,000 from sales in her first month. Her friend Jamie also invests $2,000 in exchange for a share of the business. Add up the money she received and you get $5,000. What is Bella’s total revenue?
Mia’s Candle Creations. In November, Mia spends $4,000 up front on wax and wicks - enough to last her several months of making candles. She makes $1,500 in sales. How should she record the $4,000? What is her profit or loss for November?
Leo’s Local Print Shop. In January, Leo buys a new printing machine for $12,000 and earns $6,000 in sales. Based on those numbers, what is his profit or loss for the month?
Sofia’s Sweets. In February, Sofia does not have money, so she takes out a $10,000 loan. She also earns $4,000 in sales. What would we call Sofia’s income for February?
Alex’s Landscaping. In March, Alex bills a client $5,000 for a large project, but the payment comes in April. He also earns $2,000 from smaller jobs that pay cash immediately. What are Alex’s total revenues for March?
Nina’s Tutoring. In April, a client pre-pays $1,200 for 12 tutoring sessions to be held across April, May, and June. How much should Nina recognize as revenue in April, given that she has all the money now?
Carlos’s Coffee Cart. In May, Carlos’s brother contributes $2,000 to buy into the business. Carlos also makes $2,000 in sales. What should he report as revenue earned in May?
By the end of this book you will be able to answer all seven with certainty - what the right answer is, why it is right, how to communicate it, and what it means.
I invite you into this. We are going to work hard, and I think you can get a lot out of it. At the end you will be able to analyze and interpret financial information with confidence. It will not be a mystery to you anymore, and you will find it a powerful and versatile skill. Whatever you end up doing, it is going to serve you well.
© 2026 Eric Lin. All rights reserved. This chapter is provided for students in BUSI 170 - please do not repost or redistribute without permission.