You would use effective tax rate if you are projecting GAAP Income Statement. In an ideal world, you understand the reason why statutory (ie. marginal rate) is so different from the effective rate. This would be easily explained in the tax footnote. Then you have to decide if this reason will recur ... You would use effective tax rate if you are projecting GAAP Income Statement. In an ideal world, you understand the reason why statutory (ie. marginal rate) is so different from the effective rate. This would be easily explained in the tax footnote. Then you have to decide if this reason will recur in the future. Sounds like it might since it's the past three years, but don't assume. If the effective rate is that different from the marginal/statutory rate, then it's likely a permanent difference. If it's a temporary difference, there shouldn't be a big difference in marginal/statutory and effective rates - and we would build a tax schedule to reconcile which is also important for Cash Flow from Operations precision. Read More

Ah understood, so it's not a straightforward answer. It really depends on whether the adjustments are a one time thing or whether it would continue on in the future.

As always, it's always a judgement call. Hence the art of valuation and modeling, not the science. Else, write an algo.
Remember, the value add of finance professionals is not dumb number crunching but the ability to qualitatively analyze inputs and outputs