What is Interest-bearing assets ratio?
Foizli aktivlar nisbati
In short
Cash and interest-bearing securities divided by market capitalisation. The AAOIFI limit is below 30%.
The interest-bearing assets ratio is a company's cash and interest-bearing securities divided by its market capitalisation:
- Interest-bearing assets ratio = (Cash + Interest-bearing securities) ÷ Market capitalisation
It covers bank deposits, short-term investments, government and corporate bonds — assets that earn, or can earn, interest for the company. In the AAOIFI standard this ratio must be below 30%.
Why it is checked
The debt ratio measures the company paying riba; this ratio measures it receiving riba. If a large part of a company's value consists of interest-bearing deposits and bonds, the shareholder effectively owns an interest-bearing portfolio.
Who tends to have a high ratio
Large tech companies with big cash piles, companies that have just done an IPO or raised capital, and holding structures can show a significant ratio. Such cash usually also earns interest income, which feeds into the share of impermissible income.
Limitations
As with the debt ratio, the denominator moves with the price: if the price falls, the ratio rises. Methodologies define "cash" differently (for example excluding non-interest current accounts), and some check receivables separately. The exact formula is on the methodology page.
For information only, not a fatwa.
All three ratios are below the limit (line) — it passes the financial stage. The numbers are illustrative.
Example
An illustrative company: market capitalisation $30B.
- Cash: $3B
- Short-term deposits: $2B
- Government bonds: $2.5B
- Total interest-bearing assets: $7.5B
Ratio: $7.5 ÷ $30 = 25% — below the AAOIFI standard's 30%. If the company buys another $2B of bonds: $9.5 ÷ $30 ≈ 31.7% — over the limit.
Mistakes and tips
Don't confuse this with the conventional liquidity metric (cash ratio = cash ÷ current liabilities) — in halal screening the denominator is market cap.
A company with a lot of cash may also earn a lot of interest — check the impermissible income share too.
After an IPO or a large share issue, this ratio can jump temporarily.
Halal finance terms are explained for general information — not a fatwa. Not investment advice either.
Frequently asked questions
- Why can a cash-rich company fail halal screening?
- Because that cash is usually held in interest-bearing deposits or bonds. If they exceed 30% of market capitalisation, the AAOIFI standard's criterion is not met.
- What's the difference between the interest-bearing assets ratio and the debt ratio?
- The debt ratio measures interest the company pays; the interest-bearing assets ratio measures interest it receives. Both are calculated relative to market capitalisation.
Learn it in the Academy
This term is covered with hands-on examples and a quiz in these lessons of the interactive course.
- Halal investing basicsHow a stock passes a Shariah screen: business activity, the three AAOIFI ratios with numbers, doubtful cases and what is off-limits.Open lesson · 12 min
- Financial health: balance sheet, debt and FCFReading the balance sheet, liquidity and leverage, the cash flow statement, FCF and cash conversion, dilution, red flags and the 30% halal screening ratios.Open lesson · 12 min
Try the theory without risk
Open a free account: demo trading with a $10,000 virtual balance, a trading journal, calculators and a step-by-step course.