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True. Weight loss is not always positive. In a hypothetical situation where you lose muscle mass, but maintain the same weight, this is a direct reduction in fitness levels as your body fat percentage will increase proportionally and the remaining muscle loses tone.

Under these circumstances, you would experience a reduction in overall strength as well as endurance (lift less, fewer times).

This is why the BMI is not the best index to use to gauge fitness (for athletes) although it is still valid if the individual is not extremely muscular with a low body fat percentage (like an athlete). Muscle weighs more than fat after all.

If you weigh 175 pounds and are 5'6", the BMI scale will say you are definitely overweight. But if your body fat percentage is in the single digits and you can bench press 350 pounds, you are obviously not out of shape as a straight interpretation of your BMI would imply.

Jogging is a good gauge for level of cardio fitness. For example, if you can run a sustained sub seven minute pace over ten miles while maintaining a heart rate of just over 100bpm; you're in fantastic shape. By contrast, if moving at a 10 minute mile pace is enough to get your heart rate above 150bpm; you're out of shape.