The 5 financial ratios every Muslim investor should understand
If you've ever looked at a Shariah-screening methodology page and felt like you needed a finance degree to follow it: I have good news. The whole game comes down to five ratios.
Once you understand what each one measures, every halal-investing tool starts making sense. You'll be able to read any methodology document and immediately know what it's testing, where it draws the line, and how strict or permissive it is relative to other standards.
Here they are.
Ratio 1: Impermissible income as a percentage of revenue
What it measures: How much of the company's revenue comes from activities or sources that are explicitly prohibited under Islamic finance — primarily interest income, but also incidental revenue from sectors like alcohol or gambling that the company isn't primarily in but might earn a small slice from.
Why it matters: Almost every public company touches some impermissible income — a software company earns interest on its cash float; a retailer earns small advertising revenue from a casino partner; a healthcare company has a small derivatives portfolio. Pure 0% is essentially impossible at scale.
Where each standard draws the line:
| Standard | Threshold |
|---|---|
| Strict zero-tolerance | 0% |
| AAOIFI, Mufti Taqi, DJIM, S&P, MSCI, FTSE, SAC | ≤ 5% |
| (Some older / more permissive views) | up to 10% |
What it looks like in practice: Amazon's interest income (mostly from its massive cash position earning treasury yields) is about 2.8% of revenue. JPMorgan's interest income — the entire core of its business — is 64% of revenue. Amazon passes the 5% threshold; JPMorgan obviously doesn't.
Ratio 2: Interest-bearing debt as a percentage of market capitalization
What it measures: How much money the company has borrowed at interest, relative to its market value.
Why it matters: Riba (interest) is prohibited. But many companies carry some debt — corporate bonds, bank loans, lines of credit — for ordinary business reasons. The question is: how much, relative to the size of the company.
Where each standard draws the line:
| Standard | Threshold |
|---|---|
| Strict zero-tolerance | 0% |
| AAOIFI, Mufti Taqi | ≤ 30% |
| DJIM, S&P, MSCI, FTSE, SAC | ≤ 33% (one-third) |
The 30% vs 33% gulf is the most important real divide in mainstream halal investing. AAOIFI uses 30% as one-third rounded down for safety; the index providers use exactly one-third. That seemingly tiny gap moves thousands of stocks in and out of compliant universes.
Ratio 3: Cash and interest-bearing securities as a percentage of market capitalization
What it measures: How much of the company's market value sits in cash or earning interest on its balance sheet.
Why it matters: If a company is holding a lot of cash earning interest, you're effectively buying into an interest-earning entity. Above a certain threshold, that becomes a Shariah problem.
Where each standard draws the line:
| Standard | Threshold |
|---|---|
| Strict | 0% |
| AAOIFI, Mufti Taqi | ≤ 30% |
| DJIM, S&P, MSCI, FTSE | ≤ 33% |
Apple is a famous edge case. Apple holds enormous cash reserves — historically ranging 5-10% of market cap. Below the 30% threshold, but not nothing. The standard halal screen passes Apple comfortably; investors following the strict view would have a problem.
Ratio 4: Accounts receivable as a percentage of market capitalization
What it measures: Money owed to the company by customers (typically on standard 30-90 day payment terms).
Why it matters: Receivables are debts owed to the company. Under classical Islamic finance, debt instruments cannot be traded at a discount or premium to their face value — and a company that's mostly receivables starts to resemble a debt portfolio.
Where each standard draws the line:
| Standard | Threshold |
|---|---|
| AAOIFI, Mufti Taqi | (not separately screened) |
| DJIM, S&P, MSCI, FTSE | ≤ 33% |
This is one of the cleanest examples of standards bodies differing. AAOIFI's official screen doesn't include receivables as a separate ratio. The major Western index providers do. A company like Pfizer, which has high receivables (drug-distribution payment cycles can be long), passes AAOIFI cleanly but might brush against the receivables cap in DJIM.
Ratio 5: Illiquid (tangible) assets as a percentage of total assets
What it measures: What percentage of the company's balance sheet is in real, tangible, physical assets — factories, equipment, inventory, real estate — as opposed to cash, receivables, and intangibles.
Why it matters: A company that's mostly tangible (manufacturing, retail, energy) is, in commercial substance, a real economic enterprise. A company that's mostly cash + intangibles (pure software, content) is closer to trading paper for paper.
Where each standard draws the line:
| Standard | Threshold |
|---|---|
| AAOIFI | (not screened) |
| DJIM, S&P, MSCI, FTSE | (not screened) |
| Mufti Taqi Usmani | ≥ 20% |
| Some Ja'fari interpretations | varies |
This is the most under-implemented ratio in mainstream halal-investing apps. Mufti Taqi has been publishing this threshold since the 1980s. Outside of Mizan, almost no consumer-facing halal app implements it.
It's also the rule that produces the most divergent verdicts. Amazon, Meta, Netflix, NVIDIA all pass every other ratio cleanly. All fail the illiquid floor. If you follow Mufti Taqi, your portfolio looks very different from someone following the default screen.
How to use this
Now you can read any methodology document and immediately translate it. Pull up Wahed's methodology, Zoya's methodology, or any halal-fund prospectus — you'll see one of these five tables.
Most apps screen 3-4 ratios. Mizan screens all five plus sector exclusion, and lets you set your own thresholds in the Custom profile if you follow a scholar whose rulings differ.
The harder choice is which scholar to follow. That conversation is bigger than any app. But once you've made it, your screening tool should reflect that decision — not flatten it.
Try the screener: mizan.app/screen. Six pre-built scholar profiles, plus a Custom builder where you set each of these five thresholds yourself. Transparent ratio breakdowns on every verdict.