Financial Concepts in Guillermo Furniture Store Scenario

Topics: Economics, Finance, Microeconomics Pages: 3 (764 words) Published: August 30, 2010

Guillermo's Furniture Store Scenario provides the expedient case study for studying the concept of financial principle in the competitive economic environment. The current paper discusses the approach of financial management with correct application of ideas to create value and economic efficiency through analysis of financial transactions to establish the position of Guillermo in market. The Finance Concepts found in the Context of the Scenario

Financial principles, financial markets, and business ethics form a foundation for the financial decisions that managers routinely make. Guillermo’s case study shows that the arrival of new competitor from oversees have put unexpected challenges on the financial condition of the company. The principles of finance describe typical behavior in financial transactions and provide guidance for decision making in the case of Guillermo. Competitors have advantage of applying the new technology to produce customized product with precise measurement to meet the demands of customer. Guillermo is also seeing the issue of rise in labor cost due to economic prosperity of the city. Since financial self-interest guides rational decision making, Guillermo has to reestablish its position to meet the challenges from foreign competitors in Sonora. Many financial decisions must consider the time value of money. The availability of local labor on cheap price, market condition and brand value has given economic advantage to the Guillermo from the competitors till the sudden change happened as mention in the discussion. Guillermo has three alternatives to approach the business with new insight and action. Incremental costs and benefits are the basis for choices among alternatives where transactions have at least two sides, with each party considering their self-interest. Concept of an opportunity cost can be applied to differentiate between the value of one action and the value of the best alternative. He can invest in new...

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:
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