Magna International Inc (NYSE:MGA) is already the world's number two auto parts supplier while holding the top spot in the North American auto market. However, despite holding strong positions in most of the key auto part product areas, the company would like to capture even more of the auto parts market. Magna International has plans of doing just that as the company believes that its balance sheet is currently a bit under leveraged, leaving it room to take on a bit more debt to accelerate growth and capture even more of the auto parts market.

Magna International is already close to the top
As the slide below shows, Magna International holds leading global positons in most of the major product areas.

Magna International Inc Market

Source: Magna International Investor Presentation.

However, despite being a global leader across several categories Magna International still intends to grow its position where it finds attractive opportunities. For example, earlier this year the company announced the acquisition of Getrag, which is the largest OEM-independent supplier of automotive transmissions, in an effort to bolster its powertrain offerings. The driving force behind that deal was the fact that Magna International has identified growth in the powertrain area, and has therefore made it a strategic priority within its portfolio.

On the other hand, the company has not been shy to pare away parts of its portfolio that don't have the same compelling growth prospects. That's largely behind the company's decision to sell its interior operations earlier this year.

Magna International isn't satisfied
Magna International might not be done optimizing its portfolio via acquisitions and divestitures. That's because the company has come to the realization that its balance sheet could easily handle more leverage while still staying within its target leverage ratio. As the slide below shows, the company could add between $700 million and $2.4 billion in debt to its balance sheet while still remaining within its target debt-to-EBITDA ratio of 1.0 times to 1.5 times.

Magna International Inc Balance Sheet

Source: Magna International Investor Presentation.

That debt, when combined with the company's strong cash position gives it a lot of money to put to use. The company has a variety of potential uses for that cash such as increasing its dividend, buying back shares, or funding growth both organically and via acquisitions. All options appear to be on the table as the company has consistently increased its dividend and it has bought back more than $3.2 billion in shares since 2010, including $241 million over the past year. Further, it is planning to spend upwards of $1.5 billion in capex this year to drive organic growth.

Having said all that, don't be surprised if Magna International uses its balance sheet to drive growth via acquisitions. It certainly has a lot of options as it could, for example, bolster its leading global mirrors position by acquiring auto-dimming mirror pioneer Gentex Corporation (NASDAQ:GNTX). As the slide below shows, Gentex has a growing share of the growing interior and exterior auto-dimming mirror marketplace.

Gentex Corporation

Source: Gentex Corporation Investor Presentation.

That would certainly fit within the company's desire to bolster its portfolio in product categories that are growing. Also compelling about Gentex is that the $4.4 billion company has a cash rich balance sheet with $570 million in cash against just $250 million in debt as of the end of last quarter. Because of that, such a deal could conceivably be made for all cash while enabling Magna International to stay within its target leverage range.

Another option would be to acquire a company in a new product category. An option here, for example, would be leading safety system supplier Autoliv (NYSE:ALV). It's a much larger company as its enterprise value is $10 billion, suggesting that such a deal would likely need cash and equity to complete. However, Autoliv would also fit Magna International's priority of targeting a growth market. That's because while Autoliv's revenue last year was $9.2 billion the company's plan is to grow its sales to at least $12 billion by the end of the decade, with a potential to reach $15 billion in sales if it can claim additional market share. In other words, auto safety parts are a large growth market.

Investor takeaway
Magna International is currently the second largest auto parts maker in the world with leading positions across several key markets. However, it's not content with that position, which is why it continues to refine its portfolio. More reshuffling could be on the way, with a large acquisition not out of the question due to the fact that the company's leverage ratio is below its target range giving it ample capacity to make a deal.

Matt DiLallo owns shares of Gentex and has the following options: short December 2015 $15 puts on Gentex. The Motley Fool owns shares of and recommends Gentex. The Motley Fool recommends Autoliv. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.