3. Cash Flow

Once TCI had finished writing down the value of its assets to shelter cash flow from taxes, it would have to begin paying income taxes and keep on paying interest, and there would be nothing left to fund growth. It needed to keep expanding, no matter what, buying up new cable companies to start the write-off process anew and build cash flow.
in corporate valuations—the true value of cash flow, defined as operating earnings before interest, depreciation, and taxes. Through a combination of logic, jawboning, and sheer force of presence, Malone persuaded Wall Street to take a second look at the cable industry, long shunned because of its nonexistent earnings and heavy debt addiction. Malone argued, successfully, that after-tax earnings simply didn’t count; what counted was cable’s prodigious cash flow, funding TCI’s continual expansion. Buying cable was like buying real estate. As the value of TCI’s franchises rose, so would the value of its stock. Net income was an invention of accountants, he declared.

Think about it, he’d tell a young analyst: Because TCI had high interest payments and big write-offs on cable equipment, it produced losses, and because it produced losses it paid hardly any taxes to the government. As long as cable operators collected predictable, monopoly rent from customers, met interest payments, and grew from acquisitions, why worry? Malone liked the mathematics of it: Tax-sheltered cash flow could be leveraged to land more loans to create more tax-sheltered cash flow.