The author analyzes the profitability of businesses, focusing on the difference between return on equity (ROE) and cost of equity. Two hypothetical businesses, A and B, illustrate how ROE, an accounting measure, reflects business quality but doesn't fully capture investment value. Business A, with high ROE, demonstrates strong competitive advantages, while Business B's low ROE suggests a weak business model. Efficient markets would price these businesses based on their perpetual net income, resulting in different price-to-book ratios. The author clarifies that ROE differs from the earnings yield, a market-based measure. A good company isn't always a good investment, depending on market valuation. ROE's limitations include susceptibility to accounting inconsistencies, asset aging, and fair value accounting practices. Growth significantly complicates ROE analysis, affecting the relationship between earnings yield and cost of equity. The author concludes by highlighting the complexities of evaluating businesses, emphasizing the need to consider various factors beyond simple ROE comparisons. The analysis underscores the importance of understanding the narrative behind financial numbers and the limitations of solely relying on accounting metrics for investment decisions.