Corporate Finance - How Shariah Screening on listed Companies is conducted?
There are two tier approach of Shariah Screening on listed companies. The first part focuses on the business activity benchmark and the second part focuses on the financial ratio benchmarks. In terms of business activity benchmark, the benchmark for acceptable revenues or profits generated by clearly prohibited activities, such as conventional bank (riba),conventional insurance, gambling, liquor and liquor related activities, pork and pork related activities, non halal food and beverages, interest income from conventional accounts and instruments, non compliant entertainment and tobacco and tobacco related activities is maximum 5%. Maximum 20% is dedicated for share trading, stock broking business and rental received from non shariah compliant activities. Less than 33% are related to financial ratio benchmark. These include cash over total assets and debt over total assets. Cash over asset covers the amount of cash placed in conventional accounts and instruments with the exclusion of any cash on Islamic accounts and instruments. Debt over asset includes the interest bearing debts and not Islamic debt or financing or sukuk
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