Guillermo Navallez

Guillermo Navallez has manufactured furniture in his home town of Sonora for many years (University of Phoenix, 2011). His success has come easily until competition from overseas recently entered the furniture market in his area. For Guillermo's business to survive, he studies the competitor and begins looking for new opportunities. Using the principles of finance will allow Guillermo to look at different ideas to determine the future of his company. There are three groups of financial principles; the competitive economic environment, creating value, and financial transactions.

The first group of financial principles relates to the competitive financial environment. Human behavior is not often considered when thinking of finance; however it is directly related to the decisions of the people doing business. The principle of self-interest suggests that when all else is equal, people act in their own financial interest and often occur without parties meeting face-to-face (Emery, Finnerty & Stowe, 2007). Guillermo can apply this principle by offering to become a distributor for a company in Norway. Currently, the Norway company only works with retail chains and has no means of distributing to outlets. Guillermo could become the distributor for the Norway company and secure his financial interest. Giving up manufacturing furniture to become a distributor is an opportunity cost he must consider as he continues to weigh all of his options.

In a competitive financial environment, the decision of one company gives another company a financial signal. For example, a successful furniture company operates an automated system, increasing productivity, and significantly reducing overhead. The company has sent a signal to Guillermo that this business model is efficient, and effective. Guillermo will not need to spend money or time testing the system; allowing him to benefit from another company's resources.

The second group of principles relates to creating value and good economic decisions. New products or services can create value to a company. Guillermo has patented a coating for his furniture. The coating is flame-retardant, and stain resistant. The new furniture manufacturer in the area does not have a coating for his furniture. Guillermo's product adds value to his company since there is a market for flame-retardant furniture coating.