(A). Four (4) key factors that are indicative of a successful company:

• Profitability – the operations of the company should be profitable to enable it pay adequate returns to its investors and retain some for reinvestment;
• Market share – the company should grow and maintain its market share to enable it to continue to have demand for its products and thereby generate adequate revenue from its sales;
• Growth – growth is one of the key expectations of every organisation, expanding in its operations scope of coverage and investment size;
• Cash flow – have adequate cash flow to meet its operational cost, service loans and other debts as and when they fall due;
• Customer satisfaction – have to be competitive by meeting the expectations of customers, their changing needs and preferences. This also enhances the company’s competitive advantage;
• Quality of products – the quality of products at the most competitive price also enables the company to attract and retain customers to enable it to expand its customer base, grow to enjoy economies of scale which will lead to lower cost and increased profit;
• Industrial relations – industrial relationship is key to enhancing the organisations bargaining power, and obtain information about developments in the industry to enable it respond appropriately;
• Added value – this enable the company to position itself in society as a good corporate citizen, providing services to society to enhance its public image;
• Highly skilled personnel – highly skilled improve efficiency, quality and creativity to pursue to mission of the organisation in the most cost effective manner.

(B). Government aims at controlling the amount of money in circulation. Government policies to reduce money in circulation can affect business activities in several ways as follows:

• Affect borrowing cost as government may increase its borrowing rates to attract patronage of government bills and bonds with the view to mopping up excess liquidity;
• Policies may divert investment from the private sector as strict credit controls will limit amount available for credit;
• There could be difficulties in securing funds for expansion and long term projects;
• Increased borrowing cost will put pressure on share prices thereby making it difficult to raise funds from shares;
• There would be decrease in consumer demand as a result of increased prices from the high interest;
• Decrease in disposable income due to increase in loan and mortgage repayments;
• High interest rate may increase the cost of local produce and thereby encourage consumption of imports;
• The increase in consumption of imports can result in balance of payment difficulties if exports fall as a result of increase in the prices of exports. Increased imports will result in increased demand for foreign currency leading to depreciation of the local currency.

(Ci). Fiscal policy involves the use of taxation and government spending mainly to manipulate aggregate demand with a view to influencing the economy in a particular way. Monetary policy involves the manipulation of monetary variables such as money supply and interest rate to achieve certain economic targets such as reduction in inflation.

The distinction between the two is in the variables that are used to achieve the economic target. In the case of fiscal policy, taxation and government spending are manipulated to achieve results whilst economic variables are manipulated to achieve the objectives of monetary policy.

`(Cii). Adverse effects of contractionary fiscal policy on businesses include the following:

• Reduction in sales revenue and consequently, profit: Contractionary fiscal policy involving increases in income tax rate reduces disposable income and thus aggregate demand falls. With other factors of demand remaining the same, the reduction in disposable income will result in reduction in demand for goods and services.
• Reduction in profit that can be reinvested: Increase in income tax rates will take more cash from businesses and thus reduce the amount of cash from operations that would be available for reinvestment. Firms will have to raise funds from external sources with higher costs and risks.
• Restriction on flexibility in taking credit decisions: Higher sales or consumption taxes rate (e.g. VAT rate) reduces businesses’ flexibility in granting credit. As VAT is payable when due regardless of whether payments have been received from customers or not, businesses that grant credit for periods longer than the grace period for payment of consumption taxes over the tax authority will have to pay the amount due from their own resources or with borrowed funds.
• Reduction in profit of firms facing price elastic demand: When rates of indirect taxes such as VAT and excise duty are increased, firms facing price elastic demand will have to either, absorb the additional cost and risk lower profits or pass on the additional cost to consumers in higher price to risk lower demand. In either case, the profit of such businesses will drop.
• Reduction in loanable funds: Contractionary fiscal policy reduces disposable income, and households will have little left to save in banks and/or invest in securities. This reduces the amount of surplus funds from households that can be channelled to businesses. However, if the reduction in aggregate demand results in reduction in inflation, interest rates might drop and cost of capital will be lower.