Have you ever heard of EBITDA?
It’s an important financial metric used to evaluate a company’s profitability. We also use this for determining the profitability of hotels.
EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortization.
It’s used to assess a company’s operating performance and cash flow.
To calculate EBITDA, let us look at the various terms in finance.
To calculate EBITDA, you have to start with the Sales or revenue of the hotel . Once you have the number, you remove the Cost of goods sold. This can be the food cost or beverage cost, or other expenses directly associated with making the revenue.
That will leave you with the gross profit.
If you remove other expenses from the gross profit, you will get net profit or EBITDA. Other expenses can be cost associated with running the hotel, like heat light power, repairs and maintenance, and salaries and wages.
So finally, this is what we get. Sales minus all expenses is equal to EBITDA
It’s a simple formula that provides a clear picture of a company’s financial health.
It’s important to note that EBITDA is not a perfect metric.
There are some issues with only using EBITDA for making investment decisions.
It’s often used in conjunction with other financial ratios to get a more complete picture of a company’s performance.
So, there you have it – a brief overview of EBITDA.
It’s a valuable tool for managers and hotel owners to evaluate a hotel’s profitability and financial health.