Financial principles, financial markets, and business ethics construct a major infrastructure for financial decisions that all managers or supervisors must make on a constant basis. The purpose of this paper is to explain the financial concepts found in this week’s readings and how these concepts relate to the Guillermo’s Furniture Store Scenario. According to the text reading, “the principles of finance, described in this section and the two that follow, are based on logical deduction and on empirical observation” (Chapter 2, p. 20). Until the late 1990s, Guillermo’s Furniture Store retained its competitive advantage in the furniture market. The arrival of a new overseas competitor entering the furniture market, decreased furniture prices, and increased labor costs posed as a new challenge for the organization (University of Phoenix, 2009).
For several years, Guillermo’s Furniture Store dominated the furniture manufacturing market with the ideal supply of timber to create a variation of types of furniture. As a result, the owner did not know how to forecast the new challenges that faced the company. As the new competition starts to enter the furniture market, these competitors have developed an advanced technology that produces a more customized product to meet consumer demand. With labor costs rising, Guillermo did not realize these changes and how this would affect his current business. Guillermo’s Furniture Store will need to consider the principle of self-interested behavior to help minimize the risks associated with the changes in the furniture business to meet customer expectations.
The concept of the principle of self-interested behavior basically implies that with a level playing field in the furniture business meaning all aspects of the business equals one another, then Guillermo will need to act or perform in the best financial interest of his own company. One option for Guillermo’s Furniture Store would be to purchase a high-tech laser lather operating equipment for manufacturing the product. This would be an example of the principle of self-interested behavior as it is an important corollary of this principle (Emery, Finnerty, & Stowe, 2007).
This action will create a more desirable competing action for the benefit of his organization. Guillermo could also consider becoming a furniture manufacturer for a Norway company by facilitating all distributing pathways and this behavior is an example of the principle of valuable ideas. Emery, Finnerty & Stowe state, “new products or services can create value, so if you have a new idea, you might then transform it into extraordinary positive value for yourself” (Chapter 2, p. 24). This type of behavior is clear if the owner decides to patent the current process for coating the furniture as it creates new ideas.
Guillermo will need to consider ways to create value by developing exceptional customer service with the creation of better products and services at the lowest possible price without sacrificing the quality of the product or service. The competition is fierce overseas as a direct result of inexpensive parts and labor. The furniture store will have to create the lowest and best quality product to meet consumer demands. Guillermo will need to meet the competition with its market presence by focusing on remaining competitive with the patent process.
In order to make a strategic decision on which process will be best for the furniture store, Guillermo will need to take a closer look at the financial statements to make the financial decision. Strategic analysis of financial transaction is one of the most vital facets of an organization with regard to important business decisions. This type of analysis assists any business owner or manager in deciding which type of alternative or plan would be most beneficial to the company. These decisions should also consider the impact on the market and the competition as well as the organization. Guillermo will need to discover the financial impact of either choice mentioned above to make the best decision.
Emery, D. R., Finnerty, J. D., Stowe, J. D. (2007). Corporate Financial Management (3rd ed). Chapter 2: The Financial Environment: Concepts and Principles. Prentice Hall, Inc: A Pearson Education Company. University of Phoenix. Guillermo’s Furniture Store Data. Retrieved from University of Phoenix, Corporate Finance-FIN571 website. University of Phoenix (2012). Guillermo’s Furniture Store Scenario. Retrieved from University of Phoenix, Corporate Finance-FIN571 website