Stock – Apple
Ticker – NASDAQ: AAPL
Sector – Technology
Halal – No, but use your own judgment (see full article)
Why it’s a buy – Substantial growth over the past 5 years
You want to buy Apple stock, but you’re concerned if it is sharia compliant.
Let’s take a look at their financial results for its fiscal 2020 fourth quarter ended Sept 26 2020. We’ll use 12 months ended figures rather than the quarterly for a better overall picture.
To consider if Apple is Shariah compliant, we will use the following criteria which consist of qualitative and quantitative analysis. They include three financial ratios.
- The business (high level is it obviously haram/halal?)
- Interest-bearing debt to total assets ratio
- Illiquid assets to total assets ratio
We will only apply the criteria/financial ratios in this article. If you want a detailed explanation of what each criteria contains, you can read our stock screening article. We also, have a halal stock screener course where you can access the materials anytime and it goes through step-by-step how to actually screen a stock (it helped me a lot).
We’ll also use Apple’s Form 10-K. It makes an interesting read. The form is their annual report that gives a comprehensive summary of a company’s financial performance.
Before we begin our analysis, let’s take a look at some of Apple’s highlights.
The Fiscal 2020 Highlights include that total net sales increased 6% or $14.3 billion during 2020 compared to 2019, primarily driven by higher net sales of Services and Wearables, Home and Accessories. The weakness in foreign currencies had an unfavorable impact on net sales during 2020.
The graph below shows what $100 would have made you on Apple stocks compared to different indices over 5 years. Apple has outperformed them all.
Now let’s begin to apply our criteria and find out if Apple stocks are halal.
Step 1 – The business
Net sales for 2020 were $2,745,150,000 (two billion seven hundred forty-five million one hundred fifty thousand dollars).
We need to figure out how much of this is halal.
Their business is centred around the sales of:
- Wearables, Home and Accessories
There is clear grey area around what part of the business is halal or haram.
Services – Lots of grey area
For example, their Services include digital content (App Store, music, books, etc) and Apple TV+ has haram content. However, we don’t know how much of it is or isn’t haram. The App Store has 1.96 million apps according to Statista – I really don’t fancy sifting through them all.
Services make 19.59% of net sales.
Services also include their interest-free Apple Card, which is issued by Goldman Sachs. However, it does charge interest on any unpaid monthly amount, with variable APRs ranging from 10.99-21.99%. We at IFG take the view that credit cards are permissible to the extent one does not actually borrow from the credit card company. You can read our views and analysis on credit cards here. However here the question is not whether you can use Apple Card, but whether Apple can benefit from the interest it does charge the unfortunate few who end up needing to pay it. The answer here is definitely not. This is riba plain and simple.
Apple also uses derivative financial instruments to partially offset its business exposure to foreign currency and interest rate risk on expected, future cash flows, net investments in certain foreign subsidiaries, and certain existing assets and liabilities. Again, not ideal, but we could get comfortable on this if it is solely for practical reasons that a global company like Apple faces (and not speculation). We see no indication that Apple is using derivatives to speculate.
There are some concerning ethical issues.
One of Apple’s key Chinese suppliers, Lens Technology, which makes iPhone touchscreens, has been accused of using ‘thousands of minority Uighur Muslim people in its factories, forced to work under government “labour transfer” schemes’, as reported in The Times. The owner, who is worth £12bn, declined to comment. The Times article does make a chilling read. Apple has denied these allegations, but it has given “no new business” to the company.
Furthermore, last summer, Ofilm, which makes iPhone camera components, was one of the 11 companies added to the US government’s ‘entity list’. The move followed AP reports in March 2020 that said it used Uighur “forced labour”. Apple also denied this.
There are also a number of huge fines the company has been recently forced to pay that you can look into.
There’s plenty of other ethical issues that I won’t discuss here, but according to ethical consumer, some include: ‘climate change, environmental reporting, habitats & resources, pollution and toxics, arms & military supply, human rights, workers’ rights, supply chain management, irresponsible marketing, anti-social finance, and political activities’.
Step 1 conclusion
You’ll have to make a judgment yourself.
On the business side, it is halal with some haram aspects. We do not know the precise amount of haram income it gets. We also don’t know if it is under 5% of its total income. But given the scale of some of the non-sharia-compliant revenue sources, we would guestimate that it does add up to over 5%. Services in total make 19.59% of net sales – so make of that what you will.
On the ethical side, although the Uighur claims are denied allegations, there’s ample evidence in other areas of Apple being unethical, which should make you think hard before investing.
However, if it’s a pass for you, let’s move to the next stage.
Step 2 – Interest-bearing debt to total assets ratio
This is the first of the three financial ratios we will use.
The total interest-bearing debt should not exceed 33% of total assets.
We can see ‘Term debt’ is listed under the liabilities and equity section:
- Current liabilities $8.773bn
- Non-current liabilities $98.667bn
TOTAL TERM DEBT = $107.44bn
We then divide total term debt ($107.44bn) with total assets of the company ($323.888bn) and x 100.
$107.44bn/$323.888bn*100 = 33.12%.
Apple is 0.12% over the threshold, therefore fails this step.
However, there is an alternative screening method for step 2, as discussed below.
- If we took a more cautious approach, we would have included the ‘other’ current/non-current liabilities, making the ratio even greater.
- Debt in 2020 has had an approx. $5B increase from the previous two years, both of which were steady (probably COVID related).
Interest-bearing debt to MARKET CAP ratio
An alternative way of step 2 is to compare interest-bearing debt to market cap – this is preferred by the AAOIFI right now.
We divide total term debt ($107.44bn) with the market cap of the company ($2.2t) and x 100.
This should be under 33%.
$107.44bn/$2.2t*100 = 0.0488363636%
It’s clearly under 33% – therefore Apple passes.
Step 2 Conclusion
PASSES under the market cap approach.
Ultimately the approach you take on using either the total assets or the market cap depends on the methodology you choose. The scholars are fairly comfortable with either approach – especially in times of market volatility where numbers become abnormal and sharia-compliance thresholds might get triggered a lot as stock market prices seesaw up and down.
Our approach has historically been to prefer the total assets approach unless there are compelling reasons for relying on the market cap approach instead. This should be taken on a case by case basis.
Let’s go to the final step.
Step 3 – Illiquid assets to total assets ratio
Illiquid assets should be at least 20% of total assets.
The formula is:
Illiquid assets/total assets*100.
Illiquid assets = $180.175bn (their total non-current asset figure).
Total assets = $323.888bn
Illiquid assets make up 55.63% of total assets, which is greater than 20%.
We want Illiquid assets to be 20% or more.
Therefore, Apple passes
Note: Goodwill is not specified on the balance sheet which should be included in your calculation.
We at IFG take the view that Apple stock is probably one to be avoided from a sharia-compliance perspective due to the risk of non-sharia-compliant revenue streams. Apple also has a lot of debt, so we would avoid due to that.
A summary of our analysis.
- The business – use your judgment, ours is to play it safe and avoid
- Interest-bearing debt to total assets ratio – PASS (note: pass on market cap approach, but fails on total assets approach)
- Illiquid assets to total assets ratio – PASS
Some Islamic Investment Companies include Apple in their investment portfolio, such as HSBC Islamic Funds, Wahed Invest and Iman Fund. As you can see from the above analysis, it depends on what screening rules you use on whether or not you deem a particular stock halal or haram. You can compare some funds on our Halal Investment Platform.
If you want a detailed explanation of what each criteria contains, then check out our halal stock screener course.
Please note AAOIFI are currently revising their standards, so the above may be subject to change. Please find the AAOIFI standards here. Furthermore, you must screen each stock after new figures are released to ensure there are no changes to permissibility.