One of the biggest financial misunderstandings in hospitality is the blind worship of EBITDA.

It’s treated as the gold standard of performance, yet for hotels and resorts it’s arguably one of the most misleading metrics you can rely on. (Look at any property in Las Vegas.)

Hotels… especially under management companies are notorious for this.

A property can post “strong EBITDA” and still be bleeding cash, under-invested, deteriorating, and drifting into debt-dependency. That disconnect is where owners, lenders, and operators lose real value.

Here’s the problem:

EBITDA ignores CapEx…
Hotels are capital-hungry assets. FF&E, room cycles, equipment, tech, PIPs, none of this is optional. EBITDA pretends these costs don’t exist, which makes mediocre assets look “profitable” on paper.

It ignores working-capital swings…
Receivables, payables, OTAs delaying payment, F&B inventory buildup - cash can evaporate even when EBITDA is positive. Many “EBITDA-healthy” hotels are actually cash-starved.

It masks debt and interest burdens…
Two hotels can have identical EBITDA while having completely different risk profiles. In reality, interest and debt service are what determine if the asset survives or implodes.

It encourages “adjusted EBITDA theater”…
Normalizing labor… wrong marketing… excluding repairs… projecting phantom efficiencies. EBITDA becomes a storytelling tool, not a measure of reality.

It disconnects owners from the asset’s true health…
The P&L may show operating profitability, but the cash flow tells the truth. If cash is tightening, reserves are shrinking, CapEx is delayed, and debt is climbing - your EBITDA is simply lying to you.

Charlie Munger said it best:
“When investment bankers talk about EBITDA… I call it bullshit earnings. It’s ridiculous.”

His critique fits the hotel industry perfectly.

Because hotels are not like other businesses: They’re real-time, capital-intensive operating assets.

They require constant reinvestment, tight working-capital management, disciplined flow-through strategy, and leadership that knows how to operate the asset, not just measure it.

The metrics that matter are:

• True operating cash flow
• NOI after reserves
• Flow-through effectiveness
• CapEx requirements
• Debt service coverage
• RevPAR index vs. your comp set

This is where the real story or results are.

The danger isn’t EBITDA itself, it’s the belief that EBITDA reflects the economic reality of a hotel. It doesn’t. Not even close.

If owners understood the difference, we’d see far fewer distressed assets, far fewer “mystery declines,” far fewer cash-calls, and far better alignment between ownership and on-site leadership.

In hospitality, EBITDA is not the truth. Cash flow is.

John Canavan - Follow
Hotelier | Transforming Hospitality with Passion & Precision | Operations Efficiency | Leadership | Strategic Flow-Through | Bottom-Line Management | Elevating Guest Experiences One Stay at a Time