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Journal Article

The Allocation Fallacy and Financial Analysis

Arthur L. Thomas
Financial Analysts Journal
Vol. 31, No. 5 (Sep. - Oct., 1975), pp. 37-41+68
Published by: CFA Institute
Stable URL: http://www.jstor.org/stable/4477861
Page Count: 6
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The Allocation Fallacy and Financial Analysis
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Abstract

Most amounts reported on income statements are allocations. Most allocations are based on the principle that revenues should be matched against the cost of the inputs devoted to producing them (the so-called matching principle). Unfortunately, whenever inputs working together yield more than they yield working separately, any allocation is arbitrary, and the matching principle breaks down.

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