Liquidity, Common Stock & Book Value

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 So 70% filter which previously applied is no longer applicable.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.