Spark New Zealand (NZSE:SPK) has had a rough week with its share price down 7.4%. It is possible that the markets have ignored the company’s differing financials and decided to lean-in to the negative sentiment. Long-term fundamentals are usually what drive market outcomes, so it’s worth paying close attention. In this article, we decided to focus on Spark New Zealand’s ROE.

ROE or return on equity is a useful tool to assess how effectively a company can generate returns on the investment it received from its shareholders. Put another way, it reveals the company’s success at turning shareholder investments into profits.

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The formula for return on equity is:

Return on Equity = Net Profit (from continuing operations) ÷ Shareholders’ Equity

So, based on the above formula, the ROE for Spark New Zealand is:

17% = NZ$252m ÷ NZ$1.5b (Based on the trailing twelve months to June 2025).

The ‘return’ is the income the business earned over the last year. That means that for every NZ$1 worth of shareholders’ equity, the company generated NZ$0.17 in profit.

Check out our latest analysis for Spark New Zealand

We have already established that ROE serves as an efficient profit-generating gauge for a company’s future earnings. We now need to evaluate how much profit the company reinvests or “retains” for future growth which then gives us an idea about the growth potential of the company. Generally speaking, other things being equal, firms with a high return on equity and profit retention, have a higher growth rate than firms that don’t share these attributes.

To start with, Spark New Zealand’s ROE looks acceptable. Especially when compared to the industry average of 3.4% the company’s ROE looks pretty impressive. Given the circumstances, we can’t help but wonder why Spark New Zealand saw little to no growth in the past five years. Therefore, there could be some other aspects that could potentially be preventing the company from growing. These include low earnings retention or poor allocation of capital.

Next, on comparing with the industry net income growth, we found that the industry grew its earnings by 6.8% over the last few years.

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