Finance_Week_1

Guillermo is feeling threatened by a new competitor from overseas who has entered the furniture market. A new product or market can lead to a high rate of return (Emery, Finnerty, Stowe, 2007). Since there is a new company on the market, the stock price of the new firm will rise. There will be an increase in supply, leading to a decrease in the product price. Capital market efficiency could lead to buying shares of the new company or selling shares in Guillermo Furniture. Capital market efficiency is dependent on how quickly new information is reflected in share prices. Capital markets reflect new information quickly. Capital market prices are well organized, convenient, and easily accessible. “Competition, size, and the similarity of assets combine to make the capital markets informationally efficient for actively traded securities” (Emery, 2007). Economic efficiency is created when each company does what they do best, leading to the most qualified people doing each type of work (Emery, 2007). Guillermo must operate efficiently, using resources to maximize the production of goods and services. Because Guillermo is no longer the only furniture store on the market, he will have to set competitive prices and operate efficiently. Guillermo can attain a competitive advantage with his patented process for coating the furniture. No other company has this flame-retardant and stain-resistant coating. Due to the fact that the finished coating is not in high demand, he can relate to the Behavioral Principle and look at what others are doing. There is a more cost efficient product on the market which he can begin using. Guillermo also has the option of merging into a larger organization. After doing some research on his competition to see how they are handling these changes, it is clear that many of them are consolidating into larger organizations by merger or acquisition. The financial statements for Guillermo Furniture do not include a statement of cash flows or an income statement. If Guillermo had these statements, he could readily see the financial status of the company. Although these statements would help Guillermo, they are considered historical and do not forecast for the future or give a snapshot of the current values. Financial statements provide book values, which can be significantly different than market values. Therefore, depreciation values are added to the statements. Guillermo does not have an accounting system in place. There are no statements or reports showing accruals, cash flows, or income. If Guillermo wishes to stay in business, he must make important decisions such as merging with a larger organization, preparing financial statements that are required by the general accepted accounting principles, and determine if he wants to become a distributor. References: Emery, Douglas R., Finnerty, John D., Stowe, John D. Corporate Financial Management. 2007. Third Edition. Prentice Hall. Pearson Education, Inc.