A set of financial ratios that are used by Islamic market indices (such as Dow Jones Islamic Market Indices) to screen stocks (equity investments) in terms of the content of debt and interest income in their issuing companies’ operations. For a stock to be a shari’a-compatible investment, the following ratios must not exceed 33%:
- Total debt divided by trailing 24-month average market capitalization.
- The sum of a company’s cash and interest-bearing securities divided by trailing 24-month average market capitalization.
- Accounts receivables divided by trailing 24-month average market capitalization.
The application of financial ratio screens is the second and final stage in the shari’a screening process for equity investments. It follows the application of industry screens.
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