Charter reported $22.7 billion of adjusted EBITDA. About $5 billion was left

The headline says profit is up. The slide says EBITDA is a record. Then you open the cash flow statement and the number in front of you is a quarter of the size. Which one do you believe?

Here is a real case. Charter Communications, the cable company behind Spectrum internet, reported $22.7 billion of adjusted EBITDA for 2025. In the same annual report, its own free cash flow figure was $5.0 billion. That is 22 cents of cash for every dollar of the headline.

Mastercard's EBITDA, built the same way from its own 10-K, was about $20.0 billion, a little less than Charter's. It turned roughly 82 cents of every dollar into cash. Measured the same way, Charter kept 20.

So where did Charter's other $17.7 billion go? Every dollar of the answer is in the same filing, and you can trace it in about ten minutes. Then you can do it for any company you own.

What EBITDA stands for

EBITDA is earnings before interest, taxes, depreciation and amortization. In plain words: profit, with four real costs put back in as if they had not happened.

• Interest is what the company pays its lenders.
• Taxes are what it pays the government.
• Depreciation is the cost of a long-lived asset, a cable network or a truck, spread over the years it is used.
• Amortization is the same idea for things you cannot touch, like customer contracts bought in an acquisition.

Think of a taxi driver. She takes in $100,000 of fares in a year and spends $40,000 on fuel, insurance and the radio fee. Her EBITDA is $60,000. It is also the number she would quote if she wanted to forget the car loan, the tax bill and the fact that the car wears out and has to be replaced. All three are real. EBITDA just does not look at them.

Put shorter: EBITDA is the profit a company would make if cables were free, banks were charities and the IRS took the year off.

Building it from Charter's income statement

Here are the lines from Charter's income statement for 2025, in the order the 10-K prints them. (If the statement itself is new to you, the three statements are readable in an hour.)

Source: Charter Communications 10-K for 2025, filed 30 January 2026. The gap between the last two lines is the slice of profit that belongs to outside part-owners of a Charter subsidiary.

Step 1: start at operating income. Income from operations, $12.9 billion, is the profit from running the business before interest and tax. Look where those two sit: below it. So by starting here you have already left out the "I" and the "T".

Step 2: add back depreciation and amortization (D&A). Charter charged $8.7 billion of it in 2025. Add it back and you get $21.6 billion. That is EBITDA in its plain form, and it is 39% of revenue.

Step 3: see what "adjusted" adds. Charter's own figure is $22.7 billion, about $1.1 billion higher. The difference is two lines: $673 million of stock compensation and $416 million of other operating expenses, which the 10-K says include merger and acquisition costs and losses on selling or retiring assets. 21,619 plus 673 plus 416 is exactly 22,708. You can check it with a phone calculator.

What the word "adjusted" is doing

Here is Charter's definition, in its own words, from the same 10-K:

"Adjusted EBITDA is defined as net income attributable to Charter shareholders plus net income attributable to noncontrolling interest, net interest expense, income taxes, depreciation and amortization, stock compensation expense, other income (expenses), net and other operating (income) expenses, net, such as special charges, merger and acquisition costs and (gain) loss on sale or retirement of assets."

That is a long list of things that happened and are now not counted.

Stock compensation is the one to stop at. It means paying employees in shares instead of cash. The company does not write a cheque, so it is called "non-cash". But paying the plumber with a slice of your house is still paying the plumber. Every share handed out means each existing owner holds a slightly smaller piece, unless the company spends real cash buying shares back. Charter added back $673 million of it in 2025, about 3% of its adjusted EBITDA. Small next to the network bill below, and still a cost.

Merger costs have a better excuse: Charter was in the middle of buying Cox Communications, a deal that closed on 20 August 2026. Lawyers and bankers for a deal that size are not a yearly bill. But if a company is "adjusting out" special costs every single year, they are not special.

None of this is hidden. Charter even writes the warning into its own filing. Adjusted EBITDA, it says, "does not reflect the periodic costs of certain capitalized tangible and intangible assets used in generating revenues and our cash cost of financing." Translation: it leaves out the equipment and the interest. Together those two cost Charter $16.6 billion in cash in 2025.

The tooth fairy line

Warren Buffett, in his letter to Berkshire Hathaway shareholders for 2000: "References to EBITDA make us shudder". Then the question that made the line famous: "does management think the tooth fairy pays for capital expenditures?"

Capital expenditures, capex for short, are the cash a company spends on things that last for years: cables, network gear, buildings, the boxes in your living room. Depreciation is the accounting echo of that spending, spread out. EBITDA removes the echo. The spending still happens.

Charter's capex in 2025 was $11.7 billion, against $8.7 billion of depreciation and amortization. It spent 1.34 dollars on new equipment for every dollar the accounts wrote off as worn out. And it is not one odd year:

Source: Charter 10-K for 2025, cash flow statement.

So 21 cents of every revenue dollar went back into the network. Mastercard's figure, counting its equipment and its capitalized software together, was under 4 cents.

That is Buffett's point exactly. If you value Charter on EBITDA, you are valuing it as if those $11.7 billion did not have to be spent. They do. A cable network that stops being upgraded loses customers to the one that does.

Interest and taxes are not optional either

Charter carried $94.6 billion of debt at the end of 2025, by principal. It paid $5.0 billion of interest in cash that year, close to a quarter of its EBITDA. Mastercard's interest expense was $722 million, under 4% of its EBITDA.

The lenders get paid before the owners do. That is the whole idea of debt. The interest coverage post shows how to measure how heavy that bill is, and which industries live with a heavy one by design.

Taxes are smaller here. Charter paid $893 million in cash, less than the $1.7 billion its income statement charged, because some of the tax is deferred to later years. Deferred is not cancelled.

From EBITDA to cash, one line at a time

Here is where the $22.7 billion went in 2025. Every line is from the 10-K, except "everything else", which is the gap that makes the sum close.

Cash from operations is the cash the business actually brought in during the year after paying its staff, suppliers, lenders and the taxman. Working capital is the money tied up in bills customers have not paid yet and bills the company has not paid yet; it moves around from year to year.

Charter's own free cash flow figure is $5.0 billion, a little higher than the $4.4 billion above, because Charter also counts $586 million of equipment it had been billed for but had not yet paid. Either way you land at about a fifth of the EBITDA.

And here is a detail I like. Charter's net income to its shareholders, the plain accounting profit at the bottom of the income statement, was $4,987 million. Its free cash flow was $5,004 million. After all those adjustments and add-backs, the boring number at the bottom of the page was almost exactly the cash.

Same EBITDA, two different businesses

Source: each company's 10-K for 2025. Mastercard's capex is $489 million of property and equipment plus $726 million of capitalized software.

Two companies with nearly the same EBITDA. One needs to rebuild a physical network across dozens of states and carries nearly $95 billion of debt. The other runs a payment network on software and owes $19 billion. EBITDA puts them side by side as equals. The cash flow statement does not.

When EBITDA is actually useful

It is not a fake number. It answers one narrow question well: how much does the core business throw off before you decide how to finance it, tax it and maintain it?

That makes it handy for comparing two companies with different amounts of debt, and it is why lenders love it. Charter's own debt agreements test its borrowing limits against a version of adjusted EBITDA (lawyers call those limits covenants), and the company put its net debt, debt minus cash, at 4.15 times adjusted EBITDA at the end of 2025.

It is also the bottom half of EV/EBITDA, a valuation ratio you will meet on every stock site. Enterprise value is the price of the whole company: the market value of all its shares, plus its debt, minus its cash. You do not need a share price to see the trap. Charter's debt alone is about 4.2 years of its adjusted EBITDA before a single dollar is paid for the shares. A capital-hungry company can look cheap on EV/EBITDA and expensive on free cash flow at the same time, and only one of those is cash. It is the same trap as reading a low P/E as a bargain: a ratio quietly answering a different question than the one you asked.

Check any company in ten minutes

1. Build plain EBITDA yourself. Operating income plus depreciation and amortization, both in the 10-K. If the company's "adjusted" figure is higher, list what it added back.
2. Put capex next to depreciation. Capex is in the investing section of the cash flow statement. Years of capex well above depreciation means the business either is growing or has to spend more than it admits just to stand still. The annual report usually says which.
3. Find the cash interest and cash taxes. They are near the bottom of the cash flow statement or in its notes.
4. Divide cash from operations minus capex by EBITDA. Charter: 20%. Mastercard: 82%. That one percentage tells you how much of the headline was actually left for the owners that year.
5. Read the definition. A US-listed company that quotes adjusted EBITDA has to reconcile it to a standard accounting number, and Charter does it in its 10-K. If the list of add-backs grows every year, so should your doubt.

If you want to see what a full company report looks like with all of this on one page, here is a sample report, every page of it.

Sources: Charter Communications 10-K for the year ended 31 December 2025 (filed 30 January 2026): income statement, cash flow statement, supplemental cash flow data, the definition and reconciliation of adjusted EBITDA and free cash flow, the debt principal and the ratio of net debt to adjusted EBITDA; Mastercard 10-K for the year ended 31 December 2025 (filed 11 February 2026): income statement, cash flow statement and debt note; both read from SEC EDGAR and the SEC's XBRL company facts on 2 October 2026. The Cox closing date from Charter's 8-K and press release of 20 August 2026. The Buffett quotes from Berkshire Hathaway's 2000 letter to shareholders, read on berkshirehathaway.com on 2 October 2026.

Educational and proprietary. This explains what our research does, not the exact formula behind it, and it is not personalised investment advice. See the full disclaimer.