First, we must appreciate that there is a difference between depreciation and amortization cash flows as computed in the IRS code/tax books or those reported in the financial accounting/reporting books. Now we can discuss, which of these must be factored into our DCF valuation model.

If we had a choice we should use the depreciation and amortization reported in the tax books. The tax shield is what impacts cash flows. And depreciation and amortization reported in the tax books give you a better view of the tax shields than those of the financial reporting figures.

If you do not have access to the tax books of the company, we use the depreciation and amortization cash flows as computed in the financial reporting books.