Magna International a Global Leader in Automotive

Magna International a global leader in automotive supplies "designs, develops and manufactures technologically advanced automotive systems" (Magna.com. About Us. 2011). Fiscal year 2010 saw "Magna sales of $24.1 billion, an increase of 39% compared with fiscal year 2009" (Magna International Annual Report 2010. P.10). This revenue growth was predicated on a return of global growth in the automotive space however, equally crucial was an executive management team which built a solid financial foundation "with net cash of $2 billion and little debt" (Magna International Annual Report 2010. P.10). The 2010 financial results including strong operating and net income gains stand in contrast to 2009 results which saw Magna International with net operating income and net income losses. The task at hand is to analyze the 2009 and 2010 Annual Reports to discern changes in management strategy which can explicate these financial changes.

Were fixed assets added because of the need to expand capacity or to maintain the existing capacity?

Magna's 2009 operating and net income loss was the first for the company since 1990, and was predominantly due to a global recession which saw Magna "year-over-year sales declining 27% to $17.4 billion" (Magna International Annual Report. 2009. P.12). Yet, despite the deleterious economic environment, Magna was able to capture market share through timely and strategic acquisitions, and expansion into key competitive advantage platforms involving cap-ex spending on plant and equipment. In 2009 the company "invested $629 million in fixed assets with a large portion of the investment in 2009 for manufacturing equipment for programs that will be launching subsequent to 2009" (Magna International Annual Report. 2009. P.27). Succinctly, the preponderance of the cap-ex spending on fixed assets was to expand capacity rather than for the purposes of "refurbishing or replacing assets consumed in the normal course of business" (Magna International Annual Report. 2009. P.27)

Relate the firm's annual sales to their costs. (Both fixed and variable - make estimates.)

The most useful method of analyzing Magna'a annual sales to cost is through analysis of the firm's Gross Margin and Selling, General, and Administrative Expenses (SG&A). The 2009 Annual Report identifies "Gross margin decreased 22% or $746 million to $2.72 billion for 2008 compared to $3.46 billion for 2007 and gross margin as a percentage of total sales decreased to 11.5% compared to 13.3%" (Magna International Annual Report. 2009. P.39). "The calculation of the Gross Profit is: Sales minus Cost of Goods Sold. The Cost of Goods Sold consists of the fixed and variable product costs, but it excludes all of the selling and administrative expenses" (Accounting for Management.com. N.D.). From the decline in Gross Margin as well as study of the income statement, Magna's Cost of Goods Sold declined from 2008 levels of $20.9 billion to $15.69 billion, while Selling, General, and Administrative Expenses declined from 2008 levels of $1.31 billion to $1.26 billion in 2009 (Magna International Annual Report. 2009. P.46). . What this decline indicates is significant reductions in variable cost related to labor and wages concomitant with a large reduction in sales volume. Additionally, depreciation expense declined by approximately $150 million, while interest expense increased by approximately 70 million (Magna International Annual Report. 2009. P.46).