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KembaraXtra–Islamic Finance–Islamic Capital Market–Debt-to-Asset Ratio in Shari’ah Screening
What Is the Debt-to-Asset Ratio?
The debt-to-asset ratio shows how much of a company’s assets are financed using debt.
Formula (simple):
Debt ÷ Total Assets
It tells us whether a company depends heavily on borrowing to run its business.
Why Is This Important in Islamic Finance?
In Islamic finance:
• Interest (riba) is prohibited
• Most conventional debt involves interest
• A company heavily financed by debt is not aligned with risk-sharing principles
Islam encourages:
👉 Profit-and-loss sharing, not fixed interest obligations
Shari’ah Rule (Benchmark)
Most Shari’ah standards (e.g. Dow Jones Islamic Index, AAOIFI) allow:
Interest-based debt ÷ total assets
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