Financial Concepts in Guillermo Furniture Store Scenario

Running Head: Financial Concepts in Guillermo Furniture Store Scenario

Financial Concepts in Guillermo Furniture Store Scenario

The financial principles and concepts mentioned in this report are essential to the financial decisions that managers make. Guillermo Furniture Store has come to rely on these principles for survival and prosperity financially as a competitor oversees enters. These principles of finance convey particular behaviors in financial transactions and provide direction for essential decisions making.

Concept of the competitive economic advantage

The Principle of Self-Interested Behavior: People Act in Their Own Financial Self-Interest

This principle says that when all else is equal, all parties to a financial transaction will choose the course of action most financially advantageous to themselves (Emery et al, 2007, p. 20). Guillermo must consider all of the options but finally choose financial transactions that are beneficial to obtaining a competitive advantage over foreign competition.

The Principle of Two-Sided Transactions: Each Financial Transaction Has at Least Two Sides

The Principle of Two-Sided Transactions helps to remind investors to avoid self-centeredness when making financial decisions (Emery et al, 2007, p. 21). Guillermo should remain aware of the competition and explore every alternative including acquisition from a larger firm.

The Signaling Principle: Actions Convey Information

A firm’s decision to enter a new line of business may reveal something about the firm’s position and its belief in the venture’s potential (Emery et al, 2007, p. 23). Guillermo’s willingness to expand or explore different alternatives displays a belief it the store’s future such and potential in the industry.

The Behavioral Principle: When All Else Fails, Look at What Others Are Doing for Guidance...