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Question 2

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PacknEat Pizza does pizza home deliveries and has been operating in Johannesburg.

The CEO of PacknEat studied hotel management at a Swiss college based in Luzerne, and returned to SA after working for Le Meridian, Zurich for over five years. He returned to South Africa because he wanted to have a restaurant of his own. He started PacknEat Pizza because he wanted to offer South Africans the best pizzas at the best possible prices.

PacknEat has been planning to extend its operation to other major cities like Durban and Cape Town. Its business model is simple: It has a fixed menu but adequate varieties and combos of pizzas, soft drinks and small portions of dessert. People either chose a combo or a specific item; payment is made through debit or credit cards; orders are processed after the payment is received, and delivery is done within forty minutes.

PacknEat pizzas and desserts are made at their central kitchen; soft drinks are supplied by SA Drinks, which supplies Coladas black, orange and limos along with other varieties such as strawberry.

The main suppliers for PacknEat are: SA Drinks; SA Hypermarket (for supplies like flour and condiments for pizza and desserts), and the Farmers of SA Association (for vegetables & fruit).

PacknEat has a supplier agreement for payments to be made in: 45 days after the supply of the items.

Monthly sales of PacknEat is SA Rand 500,000; since it is received upfront their account receivables are zero.

PacknEats payables outstanding on a monthly basis are as follows:

• Salaries and Overheads: R 200,000
• Payment to suppliers: R 175,000

(Disclaimer: This case is a fictitious one and has no bearing or resemblance to any firm(s) or individual(s) alive or dead. The context and everything about the case is authored for the purpose of this examination and has no utility, whatsoever, beyond the scope of this stated purpose.)

Required:

Using the range of information made available to you, answer the following two questions:

1. Critically analyse this case and make your observations on the business model of PacknEat and net working capital management. (10 marks)
2. You are the banker for PacknEat Pizza. In the context of their net working capital needs, offer your practical advice to the CEO on how to manage his cash flow from operations wisely. The following table contains a brief on various types of investment opportunities (15 marks):

vestment Options	Time period
Short-term debts	30 days
Commercial paper	15 days
SA Govt bonds	10 years
SARB M-notes	5 year
Potato futures	9 months
Platinum futures	10 months
Quasi repo-investment	40 days
Short-term Mutual paper	10 days

Offer practical advice to the CEO of PacknEat Pizza about investments. Please note these investments would be made from the cash generated through the operations before suppliers are paid.