Managing finances is essential whether it comes to personal responsibilities such as zakat or evaluating a business’s financial health through cash flow and free cash flow. Below is a step by step instruction for calculating zakat on cash, free cash flow, and cash flow.
Cash Obligation or Zakat
An obligatory charity in Islam Zakat, is calculated per annum on certain types of wealth which includes cash. If you wish to determine how much zakat you owe on your cash holdings, here is a guideline for you:
Step 1: Finding Eligibility (Nisab)
Zakat becomes obligatory if your total cash and cash equivalent assets are equal to or greater than the value of 595 grams of silver for a lunar year.
Step 2: Total Zkatable Cash
To do this, total cash in hand plus bank accounts (savings, current, fixed) plus other liquid assets.
From this total, any debts that are due for repayment within the year need to be also subtracted.
Step 3: Apply the Zakat Rate
The eligible cash amount for zakat is 2.5% of account balance.
Formula:Zakat=(Total Eligible Cash−Debts Due)×2.5%Zakat=(Total Eligible Cash−Debts Due)×2.5%
Example:
If you have ₹1,00,000 in total eligible cash and no debts due,
Zakat = ₹1,00,000 × 2.5% = ₹2,500.
How to Calculate Free Cash Flow (FCF)
Free cash flow is a key indicator of a company’s financial flexibility, showing how much cash is available after maintaining or expanding asset bases.
- Method 1: Using Operating Cash Flow
- Method 2: Using Net Income
- Formula:Free Cash Flow=Net Income+Non-Cash Expenses−Changes in Working Capital−Capital ExpendituresFree Cash Flow=Net Income+Non-Cash Expenses−Changes in Working Capital−Capital Expenditures
- Non-cash expenses include depreciation and amortization. Changes in working capital consider inventory, receivables, and payables24.
Example:
If operating cash flow is $250,000 and capital expenditures are $100,000:
FCF = $250,000 – $100,000 = $150,0002.
How to Calculate Cash Flow
Cash flow measures the net amount of cash moving in and out of a business during a period.
- Formula:Net Cash Flow=Total Cash Inflows−Total Cash OutflowsNet Cash Flow=Total Cash Inflows−Total Cash Outflows
- Cash inflows include sales, loans received, or asset sales. Outflows include payments for expenses, purchases, or loan repayments3.
Example:
If a business receives $150,000 and spends $100,000 in a month:
Net Cash Flow = $150,000 – $100,000 = $50,0003.
Summary Table
| Calculation | Formula | Example Result |
|---|---|---|
| Zakat on Cash | (Total Eligible Cash – Debts Due) × 2.5% | ₹1,00,000 × 2.5% = ₹2,500 |
| Free Cash Flow (OCF) | Operating Cash Flow – Capital Expenditures | $250,000 – $100,000 = $150,000 |
| Net Cash Flow | Total Cash Inflows – Total Cash Outflows | $150,000 – $100,000 = $50,000 |
For instant and accurate calculations, use the free online calculators at CASH DENOMINATOR CALCULATOR to check your zakat, free cash flow, and cash flow with ease!