Financial Analysis and Stock Performance of GM and Microsoft

This report provides a financial analysis of General Motors (GM) and Microsoft (MSFT) stocks, evaluating their beta, historical returns, and standard deviation. The beta analysis, using data from 2014-2019, reveals the stocks' sensitivity to the NASDAQ Composite Index, with current and historical betas calculated. The analysis indicates that Microsoft has a current beta of 0.82 and a historical beta of 0.99, while General Motors has a current beta of 0.77 and a historical beta of 1.08. The report also examines the historical average returns and standard deviations, finding that Microsoft outperformed General Motors in terms of risk-adjusted returns. The return for Microsoft was 24.20% with a standard deviation of 24.26% where as General Motors had a return of 7.07% with standard deviation of 26.30%. Overall, the analysis suggests that Microsoft stock has demonstrated superior performance compared to General Motors over the analyzed period. Desklib is your go-to platform for accessing similar solved assignments and study resources.

Running head: FINANCE
Finance
Name of the Student:
Name of the University:
Author’s Note:

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Table of Contents
Question 1..................................................................................................................................2
Question 2..................................................................................................................................3
Reference....................................................................................................................................5
Appendix....................................................................................................................................6

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Question 1
The two stocks selected for the analysis is the General Motors Company and
Microsoft Corporation. The beta for the stock was evaluated for the stock by taking the data
of the stock from the period of 2014-2019 for the purpose of the analysis. The beta of the
stock shows the movement of the stock with respect to the movement in the benchmark
index. The beta is an important financial tool that is applied by the financial analysts for
analysing the movement of the stock with respect to the benchmark index. The beta also
shows the sensitivity of the stock explaining the level of movement or the degree of
movement in the share price of the company if the benchmark index level changes by 1. The
stock current beta shows the level of movement in the recent trend period the trend period
taken for the analysis of the current beta was one year of time frame. The historical beta of
the company shows the level of movement of the stock prices in the five-year of trend period
that was analysed for the companies (Williams & Dobelman, 2017).
The current beta of the stock was determined by applying the formula function in
excel which is (=slope). The beta of the stock was determined by taking the stocks data from
the period 2018-19. The current beta of the Microsoft stock was around 0.82 times whereas
the current beta of General Motors was around 0.77 times (General Motors Company
Historical Data, 2019). The historical beta for the stock was evaluated for the stock by taking
the data of the stock from the period of 2014-2019. The historical beta of Microsoft stock was
calculated to be around 0.99 times and for General Motors the same was around 1.08 times
(Microsoft Corporation Historical Share Price, 2019). The benchmark index taken for the
purpose of the analysis was the NASDAQ Composite Index and the relevant movement of
the index was taken into consideration (Li et al. 2014)..

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If the stock market went up 10% today then the same implies in accordance with the
current beta of the stock that the Microsoft Corporation is expected to increase by about 8.3%
as the beta of the stock was determined to be around 0.83 times. On the other hand side the
movement expected in the Microsoft Corporation will be around 7.7% as the current beta of
the stock is around 0.77 times. The impact on the Microsoft Corporation is expected to be
higher than the General Motors Company because of the higher beta that was analysed for the
stock. It is also important to consider various other factors and condition under which the
operations of the company is dependent for the proper financial analysis of the stocks.
Particulars Beta
Microsoft Current Beta (1 Year) 0.83
Microsoft Historical Beta (5 Year) 0.99
Microsoft Return 24.20%
Microsoft Standard Deviation 5.89%
Microsoft Standard Deviation 24.26%
General Motors Current Beta (1 Year) 0.77
General Motors Historical Beta (5 Year) 1.08
General Motors Return 7.07%
General Motors Standard Deviation 6.92%
General Motors Standard Deviation 26.30%
Table 1: Financial Analysis of Stocks
(Source: Microsoft Corporation Historical Share Price, 2019)
Question 2
The historical average returns for the Microsoft Corporation and General Motors was
calculated by taking the stock closing price from the year 2014-2019 and the historical
average return and standard deviation for both the stocks were calculated. The historical
average return for the stocks was calculated by the return provided by the stock in these five
years using the excel function (=rate). Where:
Number of Period Taken: 5 Periods

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PMT: O (As Adjusted Closing Share Price was taken)
Present Value (P.V): Beginning Price of Stock as on 2014.
Future Value (F.V): Closing Price of Stock as on 2019.
The historical share price for the Microsoft Company was around 24.20% and for the
General Motors the same was around 7.07%. The return provided by the Microsoft
Corporation was much more superior to the General Motors Company in the five year trend
period.
The standard deviation of the stocks was calculated by taking the movement of the
share prices of the company and analysing the same via the excel command (=STDEV.P).
The standard deviation of the Microsoft Corporation was assessed to be around 24.26% and
for the General Motors was around 26.30%. The standard deviation of the General Motors
Company was much more than the Microsoft Corporation and the return provided by the
General Motor was also less compared to Microsoft. On a risk return basis the Microsoft
stock has performed better (Reboredo & Rivera-Castro, 2014).

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Reference
Williams, E. E., & Dobelman, J. A. (2017). Financial statement analysis. World Scientific
Book Chapters, 109-169.
Li, X., Xie, H., Chen, L., Wang, J., & Deng, X. (2014). News impact on stock price return via
sentiment analysis. Knowledge-Based Systems, 69, 14-23.
Reboredo, J. C., & Rivera-Castro, M. A. (2014). Wavelet-based evidence of the impact of oil
prices on stock returns. International Review of Economics & Finance, 29, 145-176.
NASDAQ Composite Historical Share Price. (2019). Retrieved from
https://finance.yahoo.com/quote/%5EIXIC/history?p=^IXIC&.tsrc=fin-srch
Microsoft Corporation Historical Share Price. (2019). Retrieved from
https://finance.yahoo.com/quote/MSFT/history?p=MSFT&.tsrc=fin-srch
General Motors Company Historical Data. (2019). Retrieved from
https://finance.yahoo.com/quote/GM/history?p=GM&.tsrc=fin-srch

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Appendix
1) General Motors Company
2) Microsoft Corporation