How to check if a company is Shariah compliant, step by step

Checking whether a company is Shariah compliant means running two screens in order: what the company sells, and what its balance sheet looks like. Under AAOIFI Shari'ah Standard No. 21, a company fails the first screen if it operates in an excluded sector such as conventional banking, insurance, alcohol, gambling or tobacco. It fails the second if prohibited income exceeds 5% of total revenue, or if either interest-bearing debt or cash plus short-term investments reaches 30% of its 12-quarter average market capitalisation. Every one of those figures is a line item in a public filing, so a single company can be checked by hand.

What follows is the procedure rather than the definition. Each step starts with the thing to do and names the document the number comes from. Two of the steps involve a choice rather than a lookup, and those two are where two careful people checking the same company end up with different answers.

Step 1: Write down which standard you are applying

Name the rulebook before anything else, because the thresholds you are about to use belong to that rulebook and not to Shariah screening in general. Five standards are widely published: AAOIFI, which this article works through, and the four index screens operated by Dow Jones Islamic Market, FTSE, MSCI and S&P. Every one of them screens business activity, income and debt. Where they part company is the cash and receivables tests — and, above all, the number they divide by.

The thresholds are close to one another. The denominators are not, and a company with a volatile share price can sit on either side of the same line depending on nothing but that choice. The full set of screens, comparators and sources is published on our screening methodology page, and the AAOIFI rules in detail on the AAOIFI page.

Step 2: Read what the company actually sells

Open the segment-reporting note in the annual filing and classify each revenue line before touching a single ratio. A company whose business is an excluded activity fails here regardless of how clean its balance sheet is, so this screen runs first and the arithmetic never has to happen.

The excluded list is conventional banks and regional banks, mortgage lenders, asset managers, stock and securities exchanges, derivatives dealers and clearing houses, insurance and life insurance, healthcare plans, tobacco, alcohol (brewers, distillers, vintners), gambling and casinos, and pork / non-halal meat. Preferred shares and fixed-income instruments are excluded by instrument, whatever the company does.

Most companies are mixed cases rather than pure ones — a retailer with a store-card financing arm, say — and the ratios below are what decide those.

Step 3: Collect the six numbers the ratios need

Six line items produce all three ratios. Four of them come off the income statement and the balance sheet, one off the segment-reporting note, and the last has to be built from market data rather than read. Take them from the filing itself rather than from a summary feed, because a summary has already made classification decisions you cannot see.

Where the documents live depends on the listing. US companies file a 10-K annually and a 10-Q each quarter with the SEC. UK companies file annual accounts at Companies House. Canadian issuers cross-listed in the US file a 40-F, and the rest publish the same statements through their own annual filings and investor-relations reporting. One detail worth getting right in the debt numerator: operating liabilities such as trade payables are excluded where they do not bear interest, so the figure is not total liabilities.

Step 4: Compute the three ratios

Three screens, four divisions: the income screen is computed twice, once over revenue that is clearly prohibited and once with doubtful revenue added at half weight. Write each one down with its numerator and denominator rather than as a bare percentage, so that someone else can reproduce it.

prohibited_income_ratio = (interest income + prohibited segment revenue) / total revenue
impure_income_ratio     = (prohibited income + half of doubtful revenue) / total revenue
debt_ratio              = (short-term debt + long-term debt + capital leases) / 12-quarter average market cap
liquidity_ratio         = (cash + short-term investments) / 12-quarter average market cap

On the wire the balance-sheet pair arrives as debt_ratio_perc and liquidity_ratio_perc, and the verdict built from them as halal_status. The income field needs one mapping stated plainly: under AAOIFI, non_compliant_revenue_perc is the impure figure — prohibited revenue plus doubtful revenue at half weight — so it reproduces the second line above and not the first. The response shape is in the API documentation, and the field-by-field walkthrough in AAOIFI Screening API: Methodology & Data Fields. AAOIFI has no receivables screen, so there is no fourth ratio to compute here, although FTSE and MSCI both screen that too.

Step 5: Apply the thresholds in the right direction

Under AAOIFI a company fails the debt and liquidity screens when a ratio reaches 30%, not when it passes it. A company at exactly 30.00% is out, and a hand check written as “greater than 30” will pass companies it should fail. The income screen reads the other way: 5% is the tolerance, and the company fails above it.

The second income line in step 4 is what gives this screen a middle state that the four index rulebooks do not have. Revenue that is doubtful rather than clearly prohibited is counted at half weight, and a company whose income crosses 5% only once that half-weighted portion is included comes out doubtful rather than not halal. Three outcomes, not two.

Step 6: Date the answer, and set a date to redo it

Record which filing the numbers came from and when you computed them, because the result expires. A new quarterly filing moves the debt and cash figures, and a trailing average market cap moves at every quarter end whether the company files or not. A verdict computed from last year's annual report is not a stale opinion; it is a different calculation.

The two choices that change the answer

Two inputs in this procedure are a judgement rather than a lookup: the denominator and the averaging window. The denominator is settled by the standard you named in step 1. The window often is not — AAOIFI Shari'ah Standard No. 21 writes no averaging period into the text, so anyone applying it has to choose one. We use a 12-quarter average and say so beside every ratio we publish, because an unstated window is the difference between two numbers that both look authoritative.

The effect is not theoretical. Lockheed Martin comes out doubtful under AAOIFI, halal under the Dow Jones and S&P Islamic rulebooks, and not halal under FTSE and MSCI — one company, five faithful applications, three different answers. That case is worked through in why two halal apps disagree about the same stock.

Where doing this by hand stops working

By hand is fine for five companies and impossible for a watchlist. The arithmetic is not what breaks; the maintenance is. One company under one standard is six line items plus twelve quarter-end market caps. Under all five standards it is four different denominators and anywhere from two to four ratios apiece. Then an SEC registrant refiles four times a year, the trailing averages move at every quarter end whether anything is filed or not, and segment classifications have to be revisited whenever a business changes what it sells.

• One company, one standard, once: a sitting with the filing open.
• Fifty companies, five standards, quarterly: a standing job for someone who reads filings.
• A whole market: an extraction pipeline, plus a governance process for the cases the pipeline cannot settle.

That is the point at which a procedure becomes infrastructure. Akinda runs this screen under all five standards and returns, for each one, the ratios alongside screen_denominator — the actual number they were divided by — which is what makes an answer checkable against the source document instead of taken on trust. The screened universe is 12,500+ stocks across 4+ markets, rounded down from a count taken on 10 October 2026: step 6 applies to the vendor too.

None of the above is a religious ruling; it describes what published standards require and how to compute them. Where a case is genuinely ambiguous — a new revenue stream, an unusual instrument — that judgement belongs to a qualified scholar, and ours is named on this site.