Fin 571 Week 1

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A New Business Era

University of Phoenix

FIN 571

Guillermo’s Furniture Store manufactures handmade furniture in Mexico where the raw materials for the furniture is abundant and the cost of labor to produce the furniture is low. When Guillermo first opened the furniture store, the area was underdeveloped. This allowed the company to make large profits manufacturing and selling the handmade furniture. Over the years, new business trends in the area of Guillermo’s manufacturing plant have changed the way Guillermo needs to business so that his profits do not decline. To remain in competitive and in business, Guillermo will have to make new financial decisions.

Decreased labor rates and increased prices of the handmade furniture, Guillermo’s zero-sum game was in his favor before the competition arrived into town.   “A zero-sum game is a situation in which one player can gain only at the expense of another player” (Emery, Finnerty, & Stowe, 2007). Because Guillermo was the only furniture manufacturing business in the area, they could sell products to customers while making a considerable profit.

As new businesses entered the area, the rates for labor and supplies began to rise. The increase in labor demands forced Guillermo to pay the employee’s higher rates, which cut into the store’s profits. A competitor, also a furniture manufacturing store sold custom-made furniture at lower prices. These new changes in the area put the zero-sum game back into the buyers hands, forcing Guillermo to make new financial decisions or he would be out of business soon.

Before a financial decision is made, Guillermo needs to review the store’s financial statements to know what kinds of decisions need to be made to remain in business competitively. Financial statements consist of balance sheets, income statements, and cash flow statements.   A company’s financial statements allow companies, investors, and even competitors to make financial decisions when used effectively....