Depreciation is the allocation of the cost of a tangible fixed asset over its useful life. Amortization is the allocation of the cost of an intangible asset over its useful life. In both cases, there is no cash flow associated with these assets after the year of purchase and so should not affect your cash flows in a DCF valuation. However, both depreciation and amortization become relevant in a DCF valuation under specific conditions. Only under specific conditions is there a difference between depreciation and amortization from a DCF valuation perspective.

This article discusses the specific conditions when there will be a difference between depreciation and amortization from a DCF valuation perspective.

This content is for Private Equity & Investment Banking Question Bank members only.
Login Join Now