A New Business Era
University of Phoenix
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, ...view middle of the document...
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.
Balance sheets are a useful and powerful tool used to make making financial decisions about a company effectively. “A balance sheet provides detailed information about a company’s assets, liabilities and shareholders’ equity” (Beginner’s Guide to Financial Statements, 2007). A company’s assets are the items a company owns. The company’s liabilities are the money a company has as debt. Shareholders equity is considered the difference from a company’s assets and liabilities.
Income statements give a visual statement of the amount of money a company has made or lost within a certain timeframe. Income statements show the money made through direct sales and the amount of money spent on items to build or purchase the products are for sale. The income statement allows managers within companies to see if the money spent is more than the money earned.
The statement of cash flows provides the amount of cash exchanged through the company. The statement of cash flows is the amount of cash coming into a company and how the cash is used. The operating, investing, and financing activities are within the statement of cash flow.
Financial decisions for a company are always a serious matter. For a company to remain in business, they need to make financial transactions that continue to make the company a profit. Incorporating ideas and changes gleaned from the financial statements will allow personnel to make the correct decisions within a business so that the company will remain successful.
Beginner’s Guide to Financial Statements. (2007). Retrieved from
Emery, D. R., Finnerty, J. D., & Stowe, J. D. (2007). Corporate finance management (3rd ed.).
Prentice Hall: Pearson Education, Inc..