By Andrew Bary

Berkshire Hathaway CEO Greg Abel is fond of a financial metric -- net cash flow from operations -- that is similar to a measure that former CEO Warren Buffett and vice chairman Charlie Munger long criticized.

In his inaugural annual shareholder letter released Saturday, Abel repeatedly referred to Berkshire's net cash flow from operations, both for the overall company and for key divisions like the BNSF railroad, Berkshire Hathaway Energy (the company's big utility), Precision Castparts and truck-stop operator Pilot.

Abel wrote that "when evaluating Berkshire's annual business performance, we believe operating earnings remains the best measure. Equally important is the cash our businesses generate."

"Berkshire produced $46 billion of net cash flows from operating activities, compared to a five-year average of more than $40 billion, underscoring our ability to invest in opportunities across our businesses," Abel wrote.

Cash flow from operations is a valid measure that corporations produce in their financial statements, but it has problems.

It's calculated by making a series of adjustments to net income, including adding back depreciation expense, as well as working capital adjustments. It doesn't factor in capital expenditures, which are critical to the health of any business.

Most companies focus on free cash flow, which adjusts cash flow from operations for capital expenditures, since free cash flow is what can be distributed to shareholders in dividends or used for stock repurchases. More relevant to investors would be Berkshire's free cash flow both at the corporate and subsidiary level.

Cash flow from operations is similar to ebidta (earnings before interest, taxes, depreciation and amortization).

"I've never seen any other company tout this metric (cash flow from operations) as one to hang one's hat on...I don't know what motivated him to use this in lieu of EBITDA. I'm sure he has his reasons, but none are apparent to me," tax expert Bob Willens told Barron's in an email.

There was no immediate response from Abel.

Buffett is a harsh critic of Ebitda, which is the main metric used in the private-equity world and for leveraged companies. Ebitda is an earnings measure that adds back depreciation, which counts as an expense on a company's income statement.

"Very few businesses can spend a whole lot less than depreciation year after year and maintain the economic strength of business," Buffett said at one of Berkshire's annual meetings. "I think Ebitda is a term that has cost a lot of investors a lot of money. To pretend that depreciation is not a real expense, that's nonsense."

Buffett pointed out that Berkshire's capital expenditures regularly exceed its depreciation -- a trend that continues. The BNSF railroad's capital expenditures, for instance, have topped depreciation in each of the past three years. Buffett prefers free cash flow.

Munger added that when investors see the term Ebitda, they should substitute "bulls--t earnings."

Write to Andrew Bary at andrew.bary@barrons.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

March 03, 2026 13:43 ET (18:43 GMT)

Copyright (c) 2026 Dow Jones & Company, Inc.