Which characteristic would make the P/B ratio a viable valuation method?

The viability of the Price-to-Book (P/B) ratio as a valuation method is significantly influenced by the relationship between a company's book value and its market value. When the company's book value reflects its actual market value, it indicates that the assets recorded on the balance sheet accurately represent their economic worth. In this scenario, the P/B ratio becomes a meaningful tool for investors looking to assess whether a company's stock is undervalued or overvalued compared to its actual tangible assets.

A company's book value consists primarily of its tangible assets minus liabilities. When these figures closely align with the market value, the P/B ratio can effectively indicate the market's perception of the company's growth potential relative to its actual equity base. This characteristic enhances the utility of the P/B ratio for investors, especially in industries where tangible assets play a critical role in determining value.

In cases where a company focuses on tech innovations, operates in a service-based sector, or possesses substantial intangible assets, the P/B ratio may not provide a true reflection of value. In these situations, earnings, growth prospects, and intangible assets may have a more pronounced impact on valuation, making other methodologies more appropriate.