Shariah-compliant stocks
Shariah-compliant stocks explained: how the Securities Commission list is screened on business activities and financial ratios, and how to read it.
What is Shariah-compliant stocks?
Shariah-compliant stocks are securities that appear on the Securities Commission Malaysia list, after screening by the SC Shariah Advisory Council on business activities and financial ratios. The list is updated periodically. Being on it shows a company passed the screen at that time, not that its shares will perform well.
How it is calculated
There is no single formula. Status is the result of a screen. The SC Shariah Advisory Council looks at core business activities and financial ratios, such as interest-bearing debt and interest income relative to the business. The list is updated periodically, so its date matters.
How Malaysian investors use it
Many investors use the list as a first filter, then read the annual and quarterly reports. A company can be removed after a later review if its activities or ratios change, and it can return later. Always confirm you are reading the latest list.
Worked example: Company A
Hypothetical Company A has interest-bearing debt of RM 50 million and a market capitalisation of RM 400 million.
- Interest-bearing debt ÷ market capitalisation = RM 50 million ÷ RM 400 million = 12.5%.
- This shows only the arithmetic. The Council’s actual tests are in its published methodology.
- One ratio does not settle the status.
Common mistakes
- Treating the list as a return guarantee or buy signal.
- Using an old copy of the list.
- Assuming shariah status is permanent.
- Judging overall quality from this status alone.
Related terms
- Debt-to-equity – a related leverage ratio, with its own screening tests.
- Quarterly report – the source of figures checked between list updates.
- Income statement – shows the profit and interest lines behind the tests.
Where Finworld shows it
In Finworld Software, the Shariah-compliant filter narrows the stock list to securities on the list. It is a starting point, and the financial statements come next.
Frequently asked questions
Does Shariah-compliant mean a stock will perform well?
No. It shows a company passed a screen at one point in time, and does not predict returns.
How often is the SC list updated?
Periodically. Check the list date before relying on it.
Can a company lose its Shariah-compliant status?
Yes, if its business activities or financial ratios change at a later review.
See how this fits into Finworld Software, or book a demo.
Finworld provides market education and research tools only. This is not investment advice. Market data is end-of-day.
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