Using current market cap vs historical average in ratios

Assalamu Alaikum,

Is it acceptable to use a 1-3 year average market capitalization value of a company instead of using today’s value, when calculating the financial ratios for the stock? It would seem that if one uses only the current value, the stock could frequently fluctuate between compliant and non-compliant status when the market is volatile, and it will also prevent Muslims from buying stocks on a dip when their price falls temporarily.

Also I noticed in another site the debt ratio is calculated as debt-to-market-cap as opposed to debt-to-total-assets, and likewise with the liquid assets ratio. Are there multiple opinions on this matter?

JazakAllah khair

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Wa alaykum salaam,

Yes, scholars have permitted using trailing market cap averages from 12 months to 36 months.

Likewise, debt/total asset and debt-to-market-cap are both permissible methods.

Allah knows best

اَلسَّلاَ مُ عَلَيْكُمْ وَرَحْمَةُ اللهِ وَبَرَكَا تُهُ

If the stock is sold will the profits be halal to keep or do we have to give it to charity when the stock turns non - shariah complaint but it is complaint when looked at the 12-36 months market cap

Can I just use the current market cap? It’s pretty difficult to work out a trailing average as it doesn’t exist and you have to basically take a load of data out of yahoo finance and manually work it out.

Wa alaykum salaam

Yes, you can use the current market cap.