South Africa has only 7 cottons gins which are spread across the Northern Cape, Limpopo and KZN. PPE Valuations have recently valued one of these cotton gins. Cotton ginning is a very complicated and technical procedure with all the equipment imported mostly from the USA. A cotton gin is classified as a specialised property and therefore is the Depreciated Replacement Cost approach the preferred method of valuation.
The Profits Approach can be used as a control method.
Under the Profits Approach, the fair maintainable operating profit (FMOP) which would be achieved by a reasonable efficient operator (REO) is calculated from the financial statements of the client. The profit is then split into an operator’s profit and a rental component. The rental component is then capitalised to arrive at a market value.