Guillermo Furniture: Financial Concepts Essay

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Guillermo Furniture: Financial Concepts Guillermo Furniture has achieved market success by specializing in handcrafted products sold at a slight premium. However, increasing competition and labor costs are eroding the company’s profit margins. Consequently, Guillermo has been forced to research and analyze the best course of action to regain lost market share and to remain competitive within the industry. Such analysis includes understanding relevant financial concepts and the role ethics play regarding financial decisions. Relevant financial information contributes to sound business solutions. For example, the predicted future costs and revenues that differ among alternatives are essential to financial decisions. Currently, Guillermo’s patented finishing coating does not have a large market audience as does the flame-retardant coating. Thus the company has determined that it could purchase another finishing product that would add the same amount of value to its custom furniture. This alternative requires consideration of the opportunity cost of eliminating in-house production of the finished coating. While Guillermo may be engaging in self-interested behavior, the owner must consider that each financial transaction has at least two sides. Sellers will also be acting in their own financial interest. Therefore, decisions regarding making or buying certain products hinges on a detailed financial cost analysis. Guillermo’s analysis also highlighted competitors’ actions regarding industry changes. Many of them have consolidated into larger organizations by merger or acquisition. The signaling principal indicates that actions convey information. Assuming self-interested behavior, Guillermo can make speculations based upon observable business decisions by others. Thus another consideration for Guillermo is whether or not to follow suit. A direct

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