Financial_Concepts_of_Guillermo_Furnture

RUNNING HEAD: Financial Concepts in Guillermo Furniture Store Financial Concepts in Guillermo Furniture Store FIN 571 Professor Tim Overton April 19th,2010 Introduction In examining the scenario of Guillermo’s Furniture Store we find several concepts of finance which include economic competition, economic efficiency, and the analysis of financial transactions. The following text will discuss these concepts as well as how they relate and may apply to Guillermo’s financial situation. The idea is to create a certain value that represents the correct application financial efficiency. Financial Concepts in Guillermo Furniture Store The principles of finance which include the financial market and business ethics set the groundwork for financial assessments customarily made by managers in any field. In the case of Guillermo’s Furniture Store we find a business that seemingly had a competitive advantage in their landscape. The catalyst for Guillermo’s new financial decision making came at the entrance of a foreign competitor who brought innovative technology which allowed for a more productive cost efficient means of operation. In addition to this the competitor was able to run their operation and sell their furniture at inexpensive prices. In the financial self interest of his own company Guillermo is faced with reestablishing his position in the market to meet with the challenges presented by the foreign competition. The concept of opportunity cost is of great importance to Guillermo as it addresses the idea of alternatives. Opportunity cost can be useful in differentiating between the value of a certain action and the value of the best alternative. Guillermo can opt to invest in new technology which would much like his competitors allow for more automated accurate furniture production. This option would incur almost no labor costs. Another option available to Guillermo is the option to continue with his current business layout while implementing the new technique for coating the furniture. Guillermo can diversify his product while reducing risk to his market share and increasing the potential for return on his investment. Another concept relative to Guillermo’s scenario is the concept of the time value of money. The convenience of local labor at a cheap price, along with market conditions and brand value gave Guillermo the economic advantage over competitors until the introduction of the foreign competitors. Most financial decisions must consider the time value of money and incremental costs along with benefits are the foundation for choices among alternatives where transactions have at least two sides; with each party appealing to their own self-interest. In order to have the time value of money work for Guillermo instead of against him he must create some sort of economic efficiency. In his market the way to do this would be increasing the quality of customer service and launching improved products that will satisfy consumer needs at a fraction of the cost. We can see this as evident with the foreign competitors who are capable of supplying the demanded products according to specific requirements of the consumer at much lower prices in comparison to Guillermo’s Furniture Store. Market prices in an efficient market reflect publicly available information. Guillermo’s attempt to counteract his competition’s market presence can be done by increasing customer value through his patented process of creating a coating for furniture, but Guillermo will still need to find away to efficiently use his resources to create a greater value. An analysis of the concept behind financial transactions is also an imperative aspect of business decision making. It is crucial to choose the suitable alternative and gage its’ impact on the market with respect to competition. Guillermo has concentrated on the effect of low selling prices from competitors as well as the influence of developmental activities in Sonora. Guillermo has also pondered the scenario of acquisition by larger corporate entities or acquiring other companies to mitigate the effect of competitors in the market. Embracing new technology that will assist in the production of higher quality furniture and providing the 24/7 service was also considered. The concept of financial transaction creates the foundation for preparing business strategy on the basis of sound assumption and logical factors to choose the suitable alternatives. In addition, standards of conduct, business ethics, and moral judgment are vital to the operations and profitability of a business. Conclusion The financial concepts discussed within play an integral role in any business venture not just Guillermo’s Furniture Store. If Guillermo can gain an understanding of these concepts with respect to his business processes it can provide him adequate insight to incorporate the various elements of the current competitive environment. These elements assist in the preparation of a strategy to satisfy challenges of revitalizing the financial condition of his store. References R. Emery, Douglas; D. Finnerty, John & John D. Stowe. (2007). Corporate Financial Management (3rd ed.). Chapter 2: The Financial Environment: Concepts and Principles. Prentice Hall, Inc: A Pearson Education Company: