The Guillermo Furniture Store scenario illustrates a company that needs to adapt to the market changes in order to stay competitive. In the scenario there were several financial concepts that were discussed.Throughout this paper those concepts are going to be analyzed. The company had a good business going due to the fact that the firm faced minimal competition, low labor costs, and the firm was able charge a premium price for its products. Then suddenly things changed as a new competitors enter the marketplace. The Sonora region became a hot spot of business activity which raised operating costs particularly labor costs. The profit margins of the firm were reduced dramatically by the rising costs. In order for a manager to realize that the profitability of a company is declining the person must evaluate the financial statements of the company. The specific financial statement that deals with profitability is the income statement. The top line of the income statement illustrates the total sales of the company for the accounting period. The costs of goods sold are subtracted from the revenues to obtain gross profit. The operating expenses and taxes are subsequently subtracted to arrive at the net income. The enterprise faces a tough dilemma because the firm has to make changes to adapt to the new realities of their marketplace. A factor that changed the furniture market in Sonora Mexico was the arrival of foreign competition. Foreign competition is a business variable that must be evaluated
by business analysts and managers of organizations.