What is EBITDA?
Earnings before interest, taxes, depreciation, and amortization. A multi-location gym reads it as operating leftover with those non-cash charges added back.
Definition
EBITDA is earnings before interest, taxes, depreciation, and amortization. On the books, this is a computed figure from the Income Statement, not a GAAP line you debit and not cash in the bank.
A multi-location gym reads it as operating income with depreciation on equipment and amortization on a training-app license added back. Interest on the build-out loan and the tax charge stay out of this figure.
It is not a ledger account with a running balance. The statement does not print it as its own GAAP line; someone adds the pieces after the close.
Stay with this add-back when you read it. The gym's cash can still be tight if members have not paid, even when this figure looks healthy.
Where it shows up
P&L: Related to operating income with depreciation and amortization added back. Not a GAAP line.
Cash flow: Related to cash from operations, which this number is not.
See also: Operating Income · Adjusted EBITDA · EBITDA Margin
When you look at your Income Statement, this figure is not its own printed account. It is operating leftover plus the period's depreciation expense and amortization expense.
When the figure is high, core work left more after running costs, or the period's non-cash charges were large. When it is low, memberships were light, wages rose, or those add-backs were small.
The Balance Sheet does not print this figure. The fixed assets and intangible assets that produced the add-backs sit there instead.
On the Statement of Cash Flows, cash from operations is a different reading. This figure adds back two non-cash charges; it does not adjust for collections, payables, or other working-capital moves.
Revenue sits at the top of the statement that feeds this math. This figure is not a percent of sales; that rate is a separate reading.
A split by location can show the same leftover in pieces. The whole-gym figure is still operating leftover with depreciation and amortization added back.
How it works
Start with this period's operating income. That leftover is already after product cost and the costs of staying open, and before interest and tax.
Add the period's depreciation expense. That charge spreads gym equipment cost over the years the machines are used.
Add the period's amortization expense. That charge writes off an intangible, such as a training-app license, over its life.
What you have is EBITDA. Interest and taxes were never in the operating leftover, so you do not subtract them again.
Stay with these two add-backs when you read the figure. Do not fold in owner pay, one-time move costs, or other normalizations here.
Do not treat this figure as cash. Depreciation is not a check the gym writes this month; adding it back does not put cash in the till.
Straight-line depreciation is a common method behind the charge you add back. The method changes the size of the add-back; it does not change what this figure means.
After the month closes, this figure is a computed reading of the period. Next month starts the count again from that month's operating leftover and that month's charges.
Example
Iron Circuit Gym posts $50,000 of operating income this month across three locations. Depreciation on treadmills and weight equipment is $8,000.
Amortization on a training-app license is $2,000. Add those charges to operating income, and EBITDA is $60,000.
The $60,000 is not cash sitting in the front-desk drawer. Members may still owe last month's dues, and the equipment loan still has interest.
If the same month had $3,000 more in wages, operating income would be $47,000. This figure would then be $57,000 after the same $10,000 of add-backs.
A new row of bikes raises next month's depreciation. This figure can hold even if operating leftover dips, because the add-back grew.
Last quarter the gym posted $48,000 of operating income and $58,000 of this figure. This month's $60,000 is higher; the rate against sales is a separate reading.
Common mix-ups
EBITDA is not the same as operating income. Operating income is leftover from core work; this figure adds depreciation and amortization back to that leftover.
EBITDA is not the same as cash from operations. Cash from operations also moves with collections, payables, and other working-capital items this figure ignores.
EBITDA is not the same as adjusted EBITDA. Adjusted EBITDA starts from this figure and then normalizes owner or one-time items; that walk belongs on its own page.
Related terms
- Operating Income: Profit from core operations before interest and taxes.
- Depreciation Expense: The periodic charge that spreads a fixed asset's cost over its useful life.
- Amortization Expense: The periodic charge that writes off an intangible asset over its life.
- Interest Expense: The cost of borrowing recorded for the period.
- Adjusted EBITDA: EBITDA with owner or one-time items normalized out.
- EBITDA Margin: EBITDA as a percentage of revenue.
- Income Tax Expense: The tax charge recorded against the period's profit.
- Cash Flow From Operations: Cash generated or used by the day-to-day running of the business.