Current Ratio

The primary intention of the short-term solvency ratios is to provide information about the

firm’s ability to pay its bills over the short term (Ross, 2019).

The current ratio is one of the most commonly used ratios, defined as follows:

Current ratio = Currents assets / Current liabilities

In 2021, 2020, 2019, 2018 and 2017, respectively, Magna had $1.30, $1.37, $1.26, $1.15

and $1.21 in current assets for every $1 in current liabilities.

Even if the current ratios were lower than the industry average ($2.88, $2.72, $2.36, 2.15,

and $2.19 for 2021, 2020, 2019, 2018 and 2017, respectively), there is no reason for concern. A

significantly higher current ratio is better for the short-term supplier, but it might indicate

inefficient use of the firm’s short-term assets (Ross, 2019). Therefore, as the values of Magna are

above 1, it might suggest an efficient use of its current assets while still indicating good liquidity.

Quick ratio

According to Ross (2019), inventory is usually the least liquid current asset. Besides, it is

the one for which the book values are least trustworthy since inventory condition is not

considered. Furthermore, relatively large inventories usually imply short-term concerns as the

firm may have a significant part of its liquidity in slow-moving inventory (Ross, 2019).

The quick ratio is calculated like the current ratio, except that inventory is excluded:

Quick ratio = Current assets – Inventory / Current liabilities

 In 2021, 2020, 2019, 2018, and 2017, Magna had a quick ratio of 1.04, 1.09, 0.99, 0.92 and

1.03, respectively. On the other hand, the industry average was 1.55, 1.61, 1.33, 1.27, 1.32 and

1.34.

The industry average reveals that inventory accounts for almost half of its current assets,

which is different for Magna. The small differences between Magna’s current and quick ratios

reveal that most of its short-term assets are more liquid.

At first glance, values below one could be a bad sign; however, a consolidated company

like Magna can operate with lower ratios because of its credit history (Scott, 2022).

Receivables turnover and Days' Sales in receivables

In 2021, 2020, 2019, 2018, and 2017 Magna had a receivable turnover ratio of 5.75, 5.11,

6.65, 6.18, and 5.46, respectively. The receivables turnover ratio indicates how many times

Magna collected its outstanding credit accounts and reloaned the money during the year (Ross,

2019). According to the cited author, this ratio makes more sense if converted into days, which

gives us the following data: 64, 72, 55, 59 and 67 days, while the average industry turnover ratio

was 53, 57, 54, 52, and 52. Therefore, Magna’s receivables turnover ratios indicate that their

customer payment trends are higher than the industry average.