Ultimate Guide: Use the Income Statement to Pick Stocks


Former stock market analyst shows you the Wall Street way to analyze the income statement and pick better stocks to buy. Don’t invest another dime until you know how to read the financial statements.

I see a lot of stock picking videos here on YouTube but none give you the tools to do your own investing. That’s why I started this series of videos, sharing the exact information I learned to become a professional market analyst.

In this video, we’ll dig into the income statement, one of the three financial statements and the backbone of stock analysis. We’ll start with the basics like what the income statement shows and how analysts use the statement to compare stocks. I’ll then reveal two techniques for income statement analysis that will make you a better investor.

Watch the rest of the videos in the series including options strategies, financial statement analysis and how to beat bad investor behaviors!

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The income statement, also called the profit & loss statement, shows the earnings of a company from the money it collects on sales all the way through costs it pays and to net income. It seems straight forward but management has all kinds of tricks it can use to make earnings look better so the analyst’s job is to adjust the income statement back to reality before comparing stocks.

Explaining the income statement starts with a basic idea of what it shows from revenue down to earnings. From sales, the company removes its cost of goods and other expenses to suppliers, before the first profitability measure, gross sales.

Next on the income statement is the most important section, operating expenses and the operating margin. This is the core profitability of the company and where analysts spend the most time.

Analyzing the income statement means understanding how management can change the numbers and being able to change them back. You’ll want to compare one company’s financial statements against another so they will both need to show the same layout and accounting.

Once you’ve adjusted the income statement, there are two techniques analysts use to pick investments. Creating a common-size income statement means taking each number as a percentage of sales. This helps to show trends as well as for comparison. Analysts also use other ratios for profitability, debt leverage and valuation with numbers from the income statement.

0:00 Income Statement Analysis
2:26 What is the income statement?
4:00 What does the income statement show?
9:11 How do stock market analysts use the income statement?
10:26 How to use the income statement in stock market analysis
16:28 How to analyze the income statement for trends
22:30 Income statement ratio analysis
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Joseph Hogue, CFA spent nearly a decade as an investment analyst for institutional firms and banks. He now helps people understand their financial lives through debt payoff strategies, investing and ways to save more money. He has appeared on Bloomberg and on sites like CNBC and Morningstar. He holds the Chartered Financial Analyst (CFA) designation and is a veteran of the Marine Corps.



Robert Dunfee


  1. Let's Talk Money! with Joseph Hogue, CFA
    July 19, 2021 at 1:58 pm

    My 5 Favorite Options Strategies…do you know all five? 😲

  2. Julia Domna
    July 19, 2021 at 1:58 pm

    Great vid as always!! When I choose to invest in a stock, I like looking at the price to book ratio for whatever reason. How important is this ratio comparatively with other valuation metrics?

  3. yippeekiyaymfs
    July 19, 2021 at 1:58 pm

    Another gem of a video from Joseph Hogue

  4. OneClassAtATime
    July 19, 2021 at 1:58 pm

    Ha Ha Ha… I used this video to help answer a question in my accounting class. Thanks Professor!

  5. Matthew Ludivico
    July 19, 2021 at 1:58 pm

    I remember those crazy AOL cds…great as chew toys for the dogs

  6. Matthew Ludivico
    July 19, 2021 at 1:58 pm

    Amazing discussion. Retail traders need to watch this video and understand how to detect bullsh*t in the finance statements.

  7. chandrika shah
    July 19, 2021 at 1:58 pm

    You are the only one whose advice for investment I would like to take after buffet..Thank you very much for such a great video and we would love to watch if you teach us to interpret the cash flow statement.

  8. Antoine Pomerleau
    July 19, 2021 at 1:58 pm

    Such great content! You have an amazing channel!

  9. Markus Kamot
    July 19, 2021 at 1:58 pm

    Love you man . Really appreciate your content

  10. Alfredo Contreras
    July 19, 2021 at 1:58 pm

    Thank you. only started investing almost a year ago and I look for videos like this to teach me. giving me good stock picks is good, but helping me find them and analyzing them on my own is even better.

  11. Sensi Swag
    July 19, 2021 at 1:58 pm

    I’m a lay man when it comes to accounting or investing, took me a good 2 hours to watch over this video and note it down. Thank you for the great content and I’ll now attempt to recreate it myself.

  12. Stock Market Stories
    July 19, 2021 at 1:58 pm

    You perfectly summed up 2 accounting courses in a 30min video, crazy. well done

    Also, still waiting for your thoughts on Mind Med (MMED). I left a lengthy review of the company on a previous video and anaysis. Let me know if you want an update analysis, Take care!

  13. jackiechandc
    July 19, 2021 at 1:58 pm

    Love this video…thank you Joseph!!

  14. Kanchha Lama
    July 19, 2021 at 1:58 pm

    Thank you sir for TELL 😂😂 i bought @ .75 . Is it good for long term? Or time to sell now

  15. Eli Groff
    July 19, 2021 at 1:58 pm

    I am in utter disbelief you are willing to go so far to explain in general knowledge how to manage my stock portfolio. If I ever get rich from listening to you I'll pay for a new platform for everyone to listen! Thank you! More than you know! You are giving knowledge to the world and people in there 20's like me! Stuff i wish they teach in High school! College is just another run around for a degree with barely any knowledge still. Ridiculous concept and find your videos to be very helpful to all!

    I am sitting here with ppe and paper writing everything down, trying to grasp every little detail, and hopefully be able to gain big on a penny stock or two in 2021!

  16. jesse gehrke
    July 19, 2021 at 1:58 pm

    I invested in NAT my first day of investing not knowing what to look for I just saw div/yd and low buy. I did a bit of research and it seems like they were slowed down buy current events and I keep hearing something about new plans for tankers within the next 5-10 years. thoughts? Love the tips and vids!

  17. Pips LeaderFx
    July 19, 2021 at 1:58 pm

    Wonderful I dont know how to look for this income flow and thier balance sheet … pls do more video on this aspect on how to track companies with this ….

    I so much appreciate your kind effort and time you gave us thanks Sir. Joseph

  18. David Cornell
    July 19, 2021 at 1:58 pm

    Thumbs up because I love the word "shenanigans".

  19. Evan Afshin
    July 19, 2021 at 1:58 pm

    Have you looked at IBM's income statement? They're known for financial engineering.

  20. bebeeisnoheeb
    July 19, 2021 at 1:58 pm

    What if a company lied on their financial report? Would they get caught?

  21. S B
    July 19, 2021 at 1:58 pm

    Brilliant video ! Learnt heaps from that. Would love to see a video talking about the valuation measures you see on yahoo finance (PE, PS, PB, PEG, EV:EBITDA etc), how they are calculated and when/ where to use them.

  22. Punter ID
    July 19, 2021 at 1:58 pm

    Your information is very helpful, thank you. You are the only analyst i follow

  23. Dr. Frank N. Furter
    July 19, 2021 at 1:58 pm

    Have MPW and IRM too. Bought it before I knew that it's first data-center is here in Frankfurt on Main under construction. It's fully leased for the next 20 years I think whilst the construction is in progress. MPW bought a chain of inpation rehabilitation hospitals here in Germany. So it's geographycally diversified. Sorry if my English is'nt perfect. I was too lazy to learn it:)

  24. Jeff Mac
    July 19, 2021 at 1:58 pm

    CFA crash course. Love it. Forensic accounting reveals all income statement ills.

  25. Mai Nguyen
    July 19, 2021 at 1:58 pm

    OMG. The amount of time spent researching on EACH recommendation in your videos is ENORMOUS. Thank you so much for sharing your time, effort, and expertise. 🥰

  26. Alex Smith
    July 19, 2021 at 1:58 pm

    I'm an accountant and taking my CPA exam this year. Everyone should appreciate this kind of info.

    Words of advice. Accounting is confusing to people that aren't in the profession. Don't talk so fast when explaining key points lol. If I wasn't an accountant you would've lost me after 60 seconds. You're already taking time out of your day to teach others so don't rush it.

    Advice to others. Accounting is the backbone of any business. Any great company has a great accounting department, but also remember accounting is a shadowy game. A lot of shady things are done to skew numbers, but also to reduce a companies tax liability. If you look at a company's financials you can bet 99% of them have a few skewed numbers to make their company look better. That's the name of the game.

    Accounting advice to any soon to be entrepreneurs or anyone that wants to escape the rat race. Start a home based business for a hobby you like. Example – wood working, gun customization, crafting, etc. You can take tons of business related tax deductions and even use some of your normal expenses, like internet expenses, as a tax deduction at year end. After you start a home based business then go into real estate. Rent properties, rent to government assistance people, build a small apartment complex, etc. These create massive tax deductions.

    Remember, start with crumbs then you'll be able to get the whole pie. 🤑

  27. Matthew Ragudo - Retirement Planning Resources
    July 19, 2021 at 1:58 pm

    I was looking to take the CFA Certification Test a couple years back. Looking forward to this from you Mr. Hogue! Thank you for your time.

  28. Mai Nguyen
    July 19, 2021 at 1:58 pm

    HI Joe 🙂 🙂 This is a piece of cake, no matter how you slice it. LOL LOL

  29. First Million Fast
    July 19, 2021 at 1:58 pm

    Thank you for the Amazing content !!!!

  30. Mark Arnold's Finance and Fitness
    July 19, 2021 at 1:58 pm

    Accountant here and I appreciate this video!

  31. Paul Glorie
    July 19, 2021 at 1:58 pm

    I ame. Look I lot off YouTube video from diverend. YouTube’s, but I ame most al do myn on homework to low the risk , and when do not no ore it’s to most divercult I do read extra information

  32. Thomas Keating
    July 19, 2021 at 1:58 pm

    For some reason I didn’t get the daily bow tie yesterday.

  33. Drileyj
    July 19, 2021 at 1:58 pm


  34. FlyersHC
    July 19, 2021 at 1:58 pm

    Thank you!

  35. Special C
    July 19, 2021 at 1:58 pm

    Very informative video, thank you. There's a lot to digest here! I'm going to download some P&L statements and see if I can start to make some sense of them now.

  36. Patrick Frazier
    July 19, 2021 at 1:58 pm

    In your portfolio on stockcard, I see that some have a sell decision next to the stocks. Does that mean that you decided to sell those stocks on that day, or that you are shorting them? And if selling, are you selling completely or just adjusting your position size?

  37. V. T.
    July 19, 2021 at 1:58 pm

    This video is gold! Thank you Joseph!

  38. Mike
    July 19, 2021 at 1:58 pm

    Mr. Hogue, That was Awesome!!! We should pay college tuition for this LOL

  39. Dr. Frank N. Furter
    July 19, 2021 at 1:58 pm

    Hey Joe! Thx for the recommendation of MAC! Bought it on 12/23/2020. Is in profit by 38.35 % till date. Greetings from Germany!

  40. Patra K
    July 19, 2021 at 1:58 pm

    I used to be an accounting auditor so this is a good refresh and reminder on how to analyze any stock. I’m now buying ARK invested stocks since I trust they know how to pick stocks that are going to be profitable.

  41. Robert Dixon
    July 19, 2021 at 1:58 pm

    No more stock picking for me until I can turn a profit in my new company that I just started. I will still follow your channel just not be active.

  42. KoKo FitFaded
    July 19, 2021 at 1:58 pm

    Thanks for the knowledge brother

  43. Singh853_
    July 19, 2021 at 1:58 pm

    Dip buy Mara