If a company’s Economic Value Added (EVA) is negative, this means that:

Economic Value Added (EVA) measures a company’s true economic profit by assessing whether it generates returns above its cost of capital.

EVA=Net Operating Profit After Tax (NOPAT)−(Capital Employed×Cost of Capital)EVA = \text{Net Operating Profit After Tax (NOPAT)} - (\text{Capital Employed} \times \text{Cost of Capital})EVA=Net Operating Profit After Tax (NOPAT)−(Capital Employed×Cost of Capital)

Why is Option B Correct?

A negative EVA means the firm’s returns are lower than its cost of capital, leading to value destruction.

Why Not Other Options?

A (Slowing growth rate) → EVA measures profitability, not growth rate.

C (Below sector average) → EVA is firm-specific, not a comparative measure.

D (Value is nil) → A company may still be profitable, but inefficient.

???? Reference: CFA Institute (EVA Analysis), CISI Wealth & Investment Management.