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How investors can be fooled by provisions

In his second video in his ‘cooking the books’ series, Tim Bennett takes a look at how companies can manipulate what accountants call ‘provisions’ to create the profit profile they want investors to see. He also explains how you can avoid being fooled.

More from this series

How investors can be fooled by long-term contracts
How investors can be fooled by long-term assets

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Video tutorial - why profit margins matter

Why profit margins are really useful

In this video, Ed Bowsher explains how to calculate a company’s profit margin, why it is the best way to evaluate profitability, and how you can use it when analysing a company.

Shale gas 'fracking' promises to transform Britain's energy market. Find out what it is, what it means, and how to invest.
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MoneyWeek Videos is our free weekly video email which breaks down the complicated world of finance and helps you understand what's really going on. Every week, MoneyWeek's Ed Bowsher takes a key piece of financial news or jargon and explains it. To join MoneyWeek Videos for free, just enter your email address.

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One Response

  1. 18/09/2014, dfl3tch3r wrote

    This is where traders can help educate investors….For instance investing would seem to most, less riskier than trading. I would say not so! A trader knows exactly what his risk amount is to the nearest penny by the use of a stop loss. Because of this he can use leverage in order to run profits and avoid chasing losers. A technical trader does not care which company he trades so he’s not emotional about the stock to begin with. A trader usually has a ‘system’ so he avoids Recency Bias. A trader isn’t looking for the cheapest price or ‘bargain’ stock; if he’s a technical trader he’s simply interested in the pattern, and so forgets the cheapest price and waits for a trend change instead. Not always but more often a trader is least affected by emotions. Apply this to investing and you’ll do well.

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