Salam alaykum,
How do we actually know if a company has put it its cash reserves into interest-bearing securities / bank accounts? @saadm
Is this an assumption?
Similar to how we assume that a companies debt/loans also incur interest?
JazakhAllah khair
Wa alaykum salaam. It’s not straight forward to determine interest bearing cash from annual reports. The shariah screening ratios simply add up all cash and interest bearing income (i.e. noted as ‘investments’) and divide this figure by the total assets. For example, in the case of Yassar FTSE screening, If the total percentage of cash/investments is 33% or less then the stock is considered shariah compliant. The ratio is different depending on the screening method used, however 33% is the most conservative figure I have come across.
As for interest bearing debt, this is noted as ‘interest bearing loans and borrowings’ in the liabilities section of a company’s annual report.
Hope this helps insha Allah. A mufti/ibrahim may be able to expand. And Allah knows best.
JzkAllahkher
Nawaaz