Salaam Gents,
I have a little confusion on the most recent video on Investing fiqh, with Mufti Faraz. He mentions that AAIOFI Liquidity filter is no longer in place for Common Stock. Could you please elaborate on this so I know whether I can invest in the common stock of companies trading below their book values (Net Assets).
Secondly, if the company is trading for less than it’s cash and cash equivalents is it permissible to invest in?
Kind Regards…
Wa alaykum salaam,
Yes, AAOIFI have removed the liquidity filter in their latest standard on sale of debt. So 70% filter which previously applied is no longer applicable. As long as there are some assets, it is permissible to trade at a different price.
Jazakallah,
So just to clarify with an example,
If a company is trading at a Market Cap of GBP 112 Million, but its Cash and Cash equivalents are a total of GBP 590 Million and the Property plant and Equipment is at GBP 16 Million, before subtracting liabilities.
Is this Shariah compliant to invest in?
It just depends if it meets the other Shariah requirements, but in principle, the liquidity wil not be a concern.
Asalaamalykom wa rahmatallahi wa barakaato,
I’ve been trying to workout the cash/assets ratio for the following company. The financial statements are here: https://beta.companieshouse.gov.uk/company/04811048/filing-history/MzI2NzY0Mzg4OWFkaXF6a2N4/document?format=pdf&download=0
For liquid assets, I’m assuming most if it is under current assets. What I’m sure about is:
*Short term deposits
*Cash at bank and in hand
Not sure about stocks (notes 14) and Debtors (notes 15).
From the notes 14 on stocks, raw materials, consumables, etc… I wouldn’t consider as liquid. Would you agree?
From notes 15, could I consider Deferred Tax Asset and R&D tax credit as non-liquid?
Otherwise if I take the total current assets / total assets, it breaks the 80% ratio rule. (~91.6%).
Since you’ve mentioned above that the AAOIFI have removed this filter, is it safe to say that regardless if I use the total current assets, or suss out what’s deemed liquid or not, I can consider this step halal?
Jazak Allahu Khayrun
Hakim