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Guillermo Navallez owns and operates Guillermo Furniture one of the largest furniture manufacturing companies in Sonora, Mexico. During the late 1990’s Guillermo suffered a decrease in his profitability when two major events took place within the industry. The first event was caused by the arrival of a new overseas competitor that used high-tech equipment that allowed for the manufacturing of customized furniture. The second was a result of an increase in the cost of labor within the city.

Guillermo did some research and found that he had three alternatives. The first alternative is that he can invest a significant amount of capital into the business by upgrading, purchasing, and installing state of the art equipment. This requires a large amount of cash output and long term debt but can be offset by the reduction in labor and decrease in production costs.

The second alternative is to merge with a larger competitor. Both company’s would benefit from this option. Guillermo would have access to the new advanced technology and state of the art equipment and the new company would gain Guillermo’s years of experience and craftsmanship. Guillermo would have to take on more management responsibilities which will reduce the amount of time he will have to spend with his family.

The third alternative is for Guillermo to transition from a manufacturing company to a distribution center. Guillermo could coordinate his current distributor network allowing him to become a representative for other manufacturing companies. This would allow him to spend more time with this family as well as continue to produce high end custom furniture. He also has a patent on a coating and finishing stain that if sold would produce additional income.

We will help Guillermo analyze his alternatives and will provide the financial information he needs to make the best decision in regards to the future of his company. We will review the three financial working capital philosophies...