How to Tell If a Stock Is Halal: AAOIFI Screening Walked Through on a Real Ticker
To tell if a stock is halal under the AAOIFI standard, you run two screens in order. First check what the company actually does — if its core business is haram (interest banking, alcohol, gambling), it fails and no maths can rescue it. Only if it passes do you run the financial ratios: interest-bearing debt under 30% of market capitalisation, interest-bearing investments under 30%, and impermissible income under 5% of revenue. Below I do exactly that on a real FTSE 100 company using its published annual report.
The two-stage AAOIFI screen, in plain terms
The most widely cited framework for share screening is set out in AAOIFI Shari'ah Standard No. 21, "Financial Paper (Shares and Bonds)", issued by the Accounting and Auditing Organisation for Islamic Financial Institutions. (AAOIFI, SS No. 21.) Almost every halal-stock app you have used — Zoya, Musaffa, Islamicly — is implementing some version of these rules.
The standard works in a strict order, and the order matters:
Stage 1 — Business activity screen (qualitative)
What does the company sell? If the company's primary purpose or a material part of its activity is impermissible, the share is not allowed. The classic excluded sectors are:
- Conventional (interest-based) banking, insurance and lending
- Alcohol, tobacco and recreational drugs
- Pork and non-halal meat production
- Gambling, casinos and conventional lottery
- Adult entertainment / pornography
- Weapons sold for unlawful aggression
This stage is a gate, not a slider. A brewery with zero debt and zero interest income still fails, because selling beer is the business. There is no purification large enough to fix a haram core activity — you simply do not own it.
Stage 2 — Financial ratio screen (quantitative)
If — and only if — the business activity is permissible, you test three ratios. A failure on any one of them disqualifies the share:
| Ratio | What it measures | AAOIFI threshold |
|---|---|---|
| Interest-bearing debt ÷ market cap | How much of the company is funded by riba-based borrowing | Less than 30% |
| Interest-bearing investments & cash ÷ market cap | How much sits in interest-earning deposits/securities | Less than 30% |
| Impermissible income ÷ total revenue | Income from haram sources, mainly interest received | Less than 5% |
AAOIFI uses market capitalisation (today's share price × shares in issue) as the denominator, not total assets. That is a deliberate choice: market cap reflects current reality and is harder to inflate with accounting choices. Two practical consequences: (1) the verdict can change with the share price even if the balance sheet is unchanged, and (2) other respected methodologies differ — Dow Jones and S&P use a trailing 24-month average market cap, and many index providers use total assets as the denominator with a 33% cap. Pick one methodology and apply it consistently rather than mixing them.
Where to find the numbers
You do not need a paid data terminal. Every figure for the financial screen is in documents you can read for free:
| You need | Where it lives | Source |
|---|---|---|
| Interest-bearing debt | "Borrowings" / "Loans and borrowings" lines in current and non-current liabilities on the consolidated balance sheet | Annual report (UK plc) or Form 10-K (US filer) |
| Cash & interest-bearing investments | "Cash and cash equivalents" and "current asset investments" on the balance sheet | Annual report / 10-K |
| Impermissible income | "Finance income" / "Interest income" on the income statement or in the notes | Annual report / 10-K |
| Total revenue | Top line of the income statement | Annual report / 10-K |
| Market cap | Live share price × shares in issue (recompute on the day you screen) | London Stock Exchange / your broker |
For UK listed companies the annual report is on the company's investor-relations site and on the FCA National Storage Mechanism. For a private UK company that isn't listed, you can still pull filed accounts for free from Companies House — though you cannot run the market-cap ratios on an unlisted company (there is no market price), so for private firms you fall back on net assets or simply cannot apply the public-equity screen.
Worked example: screening Halma plc (LSE: HLMA)
Let's run a complete screen on a real, well-known FTSE 100 name. I picked Halma plc because it is a clean teaching case: a permissible core business and a balance sheet you can read in five minutes. All figures below are taken from Halma's audited Full Year Results for the year ended 31 March 2025 (halma.com investor results).
The investor: Aisha, 34, in Manchester, holds a stocks & shares ISA and wants to add Halma but only if it passes the AAOIFI screen. She refuses to outsource the verdict to an app she doesn't understand, so she screens it herself.
Stage 1 — business activity. Halma is a group of companies in safety, health and environmental technology — gas-leak detectors, fire-safety sensors, ophthalmic diagnostics, water-analysis instruments. None of that touches alcohol, gambling, conventional finance, tobacco, pork or adult content. Stage 1: PASS. Now, and only now, do the maths.
Stage 2 — the numbers (year ended 31 March 2025):
- Current borrowings: £35.6m
- Non-current borrowings: £703.8m
- Total interest-bearing borrowings: £35.6m + £703.8m = £739.4m
- Cash and bank balances: £313.2m
- Finance income (interest received): £6.4m
- Total revenue: £2,248.1m
(The weighted average interest rate on Halma's gross debt was 3.65% per the same report — confirming this is genuine riba-based borrowing, which is exactly what the screen is testing for.)
Market cap. AAOIFI wants today's market cap. On the screening date Aisha uses Halma's quoted share price of 4,050p against 377.7m shares in issue:
£40.50 × 377,700,000 ≈ £15.3bn
(Market cap moves every day. Aisha notes the price and date so she can reproduce the verdict — and re-checks before she actually buys.)
Ratio 1 — interest-bearing debt ÷ market cap:
£739.4m ÷ £15,300m = 4.83% → well under 30%. PASS.
Ratio 2 — cash & interest-bearing investments ÷ market cap:
£313.2m ÷ £15,300m = 2.05% → well under 30%. PASS. (Halma holds no large interest-bearing securities portfolio; cash is the relevant figure here.)
Ratio 3 — impermissible income ÷ total revenue:
£6.4m ÷ £2,248.1m = 0.28% → under 5%. PASS.
Verdict: Halma passes all four AAOIFI checks (one business + three financial). On these audited figures and that market-cap snapshot, the share is Shari'ah-compliant under the AAOIFI methodology — with a small purification obligation on the interest income, covered below.
| Check | Calculation | Result | Threshold | Verdict |
|---|---|---|---|---|
| Business activity | Safety/health/environmental tech | Permissible | Must be permissible | PASS |
| Debt ÷ market cap | £739.4m ÷ £15,300m | 4.83% | < 30% | PASS |
| Cash & investments ÷ market cap | £313.2m ÷ £15,300m | 2.05% | < 30% | PASS |
| Interest income ÷ revenue | £6.4m ÷ £2,248.1m | 0.28% | < 5% | PASS |
If Halma had been a conventional bank, Aisha would have stopped at Stage 1 in ten seconds — no need to fetch a single balance-sheet number. Always screen the business first. Most people get this backwards, crunch ratios for an hour, and then realise the company was a casino operator all along.
The purification follow-up
Passing the screen is not quite the finish line. Even a compliant company usually earns a sliver of interest income — Halma's £6.4m is a tiny 0.28% of revenue, but it is still riba that flows through to shareholders. Most scholars require you to purify your share of that tainted income by giving it away to charity, with no expectation of reward and not as part of your zakat.
The common method: estimate the impermissible income per share, multiply by your shares, and donate that amount. A typical proxy is impermissible income ÷ shares in issue. For Halma:
£6.4m ÷ 377.7m shares ≈ £0.017 per share per year
So an investor holding 1,000 Halma shares would purify roughly £17 a year. Many screening apps calculate this dividend-purification figure for you; if you screen by hand, do the per-share sum yourself. The amount is small precisely because the company passed — a near-miss company at 4.9% impermissible income would owe far more.
- Business first, ratios second. A haram core activity is an instant fail; no financial ratio can purify it.
- AAOIFI thresholds: interest-bearing debt < 30% of market cap, interest-bearing cash/investments < 30% of market cap, impermissible income < 5% of revenue.
- The denominator is market cap in AAOIFI's standard — recompute it on the day you screen, because the verdict can flip with the share price. Other methodologies use trailing-average market cap or total assets; don't mix them.
- Every input is free: annual report or 10-K for the balance sheet and income statement, Companies House for unlisted UK firms, your broker for the live price.
- A pass still carries a purification duty: give away your share of the interest income to charity, separate from zakat.
- This is educational, methodology-level information — not a personal fatwa. Compliance views and figures change every reporting period, so re-screen before you buy.
What are the exact AAOIFI ratio limits for a halal stock?
Under AAOIFI Shari'ah Standard No. 21, after a company passes the business-activity screen, three financial ratios must hold: interest-bearing debt must be under 30% of market capitalisation; interest-bearing investments and cash must be under 30% of market capitalisation; and impermissible income (mainly interest received) must be under 5% of total revenue. Failing any one ratio disqualifies the share.
Why does the result change with the share price?
Because AAOIFI uses market capitalisation as the denominator, and market cap = share price × shares in issue. If the price falls sharply while debt stays the same, the debt-to-market-cap ratio rises and a previously compliant company can breach the 30% line. That is why you should re-screen on the day you intend to trade rather than relying on a months-old verdict.
Where do I find debt and interest income in a UK annual report?
Interest-bearing debt sits under "Borrowings" or "Loans and borrowings" in both current and non-current liabilities on the consolidated balance sheet; add the two together. Cash is the "Cash and cash equivalents" line. Interest received is shown as "Finance income" or "Interest income" on the income statement or in the notes. For US filers the same items appear in the Form 10-K.
Can I screen a private UK company that isn't listed?
You can read its filed accounts for free on Companies House, but you cannot run the AAOIFI market-cap ratios because there is no market price for an unlisted company. The public-equity screen is built for listed shares. For private firms, scholars typically fall back on net-assets-based tests or assess the underlying business directly.
If a stock passes, do I still owe anything?
Usually yes — purification. Even a compliant company earns some interest, so you give away your proportionate share of that impermissible income to charity, with no expectation of reward and separate from your zakat. The amount is small for a clean pass and larger for a company sitting near the 5% income limit.
Is the AAOIFI 30% the only accepted standard?
No. AAOIFI is the most widely cited, but Dow Jones Islamic Market indices and S&P use a trailing 24-month average market cap, and several index providers use total assets as the denominator with a 33% cap. The screens give similar but not identical verdicts. Choose one methodology, understand it, and apply it consistently rather than cherry-picking the most favourable result.
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