Long-term investing
Sharia screening
Definition
Checking a company’s business and financial ratios against a Sharia standard to classify its shares as compliant or not. It is a method, not a fatwa.
Example
Suppose a Sharia screen requires interest-bearing debt below 30% of market capitalization, and a company has $240 million of such debt and a $1 billion market value: 24%, a pass. If its share price falls 25%, the market value drops to $750 million and the same debt becomes 32%, so that screen now classifies the shares as non-compliant. Nothing in the business changed; only the denominator moved.
Hypothetical numbers, for illustration only.
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