please respond to my classmate's discussion below ;STRAYER FIN 534

Examine the key reasons why a business may not want to hold too much or too little working capital. Provide examples that illustrate the consequences of either situation.

Skillful cash management, including working capital management, cash forecasting, and financing, is key to the success of an enterprise. When cash is tight, companies focus on generating liquidity for the variety of different funding needs within the business. On the operational side, working capital is primarily impacted through the management of the three major areas: receivables, payables and inventory.

There are many reasons why an organization may or may not want to hold on to working capital. Having too little or too much working capital can have a negative impact on the organization. If an organization has too little working capital this may mean that the company isnt in good financial standing. If an organization has too much working capital it may mean that the organization has a surplus of cash that isnt earning a return. Either way the best level of working capital should be a happy middle. The capitalization ratio (total debt/total capitalization) compares the debt component of a company's capital structure (the sum of obligations categorized as debt + total shareholders' equity) to the equity component. Expressed as a percentage, a low number is indicative of a healthy equity cushion, which is always more desirable than a high percentage of debt

From the scenario, analyze TFCs cash budget to determine key methods in which the budget may be optimized (e.g., by renegotiating terms and conditions on some of its payables, etc.). If you believe that there is room for improvement, recommend key strategies for TFC to use in order to optimize its cash budget. If you do not believe that this is the case, provide a rationale for your response.

As we learned in the scenario TFC has a pretty decent cash flow budget. The executives stated that only 2 of the 6 months have a negative cash flow. Obviously, cash positive months make more of a profit then the negative months of losses. The executives at TFC suggested a few ways to improve the cash budget, they were: Shortening the DSO (Days Sales Outstanding), changing the dividend payout schedule, and taking a look at discounts offered to its customers. Possibly changing the structure of what is offered. It seems that 45% of its customers takes advantage of the "wait a month" to pay the dues, that's almost 1/2 of its customers, paying dues one month behind, which of course doesn't match the expenses in the month they are using the services of the TFC gyms. My recommendations for optimizing the cash budget would be for TFC to concentrate on "Improving Payer Performance" and "Enhancing Cash Collection".