Guillermo Furniture Store Concepts Paper Essay
Guillermo Navallez is a proud furniture manufacturer, which specialized in handcrafted premium furniture in Sonora, Mexico - Guillermo Furniture Store Concepts Paper Essay introduction. In the 1990s events happen to change Guillermo business; a new competitor from overseas entered the furniture market. The new company use a high-tech approach and provided rock bottom prices and produce furniture faster and cheaper in cost than Guillermo. Guillermo watched his profit margins shrink in his company, as sales dropped, and costs rose. Guillermo had a dilemma because of the new competition from both companies and his declining profits (University of Phoenix, 2009).
Guillermo needed to ask himself a question how could he continue to exist with the new competition and deal with his finances in his new environment. Guillermo first had to look at financial environments and the concepts and principles of his economic environment. The first group of principles was competition of an economic environment, Guillermo had to find away to make a good business decisions, he need to learn how to understand human behavior. He would learn these processes through the principle of self-interested behavior.
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The most important application of the principle of self-interested behavior is called agency theory. The theory will help Guillermo analyzes conflicts of interest and behavior in principal agent relationship (Emery, Finnerty, Stowe, (2007) p. 20). The second principle was creating value and economic efficiency, Guillermo look at the options principle value. Guillermo can require the new competition to make transaction specified in an option contract. For example; Guillermo can retain his high end custom work, and move his company from a primarily manufacturing to distribution primarily (University of Phoenix, 2009).
The last principle Guillermo observe was financial transaction, he observe the zero-sum game. Guillermo learned in the zero-sum game that only one person can gain at the expense of another player. For example, Guillermo may lose if he decides to go into business with the new competition or vice versa the competition could lose. After doing his financial environment research Guillermo turn to his accounting department. The accounting department report financial activities to stakeholders, and provide information to Guillermo to help him make firm decision on the furniture company.
Guillermo first looked at his financial statement, which includes an income statement, a balance sheet, a statement of cash flow, and accompanying notes. The balance sheet would show Guillermo firm’s assets, which will show him exactly how much working capital he has for his operation, for example, on December 31, 2009 his total current assets are $495,163 USD. The income statement will report Guillermo revenues, expenses, and profit or loss from his furniture company, which is usually done quarterly of the year.
The statement cash flow for Guillermo is broken down into three components operating, investing, and financing activities. These are the funds that will flow between Guillermo investors, creditors, workers, customers, and stakeholders. The financial statement notes Guillermo has are an integral part of the statement. The notes disclose significant accounting policies and how the financial statement was prepare, for example, Guillermo has four reports he uses to collect his data income statement, flex budget, production data, and setup information report.
One other report Guillermo may use in his analysis for his finances is the common-statement analysis. The common-statement helps him compare on a common basis and make some comparisons meaningful. Common-size analysis shows items as a percentage rather than amount of money, and common-base analysis show items as a percentage in an initial year (Emery, Finnerty, Stowe, (2007) p. 69). Conclusion Guillermo Navallez knows that his finances will make or break his family own business.
Guillermo must take the time and adjust his financial statement to meet the growing needs of the new competition that is growing in his market. Once he analyze and compare the reports to the competition, he will know the proper direct to focus his attention. Guillermo will continue to make the right financial decision and be true to his customers and the family business.
Emery, Finnerty, Stowe, (2007). Corporate Financial Management (3rd ed. ). New Jersey:Pearson-Prentice Hall. University of Phoenix. (2009). Guillermo’s Furniture Store Scenario. Retrieved from University of Phoenix, FIN571 website.