Coefficient of Variation (CoV)
How stable is a metric relative to its own mean?
Definition
CoV measures the standard deviation of a series relative to its mean. It is a dimensionless ratio, making it ideal for comparing variability across metrics with different scales or units.
Formula
Where
Interpretation
| Range | Assessment |
|---|---|
| < 10% | Highly stable |
| 10% – 20% | Moderate variability |
| > 20% | Volatile |
Applications in Finsco
CoV is used as the universal stability metric across all audit commands:
| Command | Metric | What it measures |
|---|---|---|
audit returns |
ROE Stability | Consistency of return on equity |
audit returns |
ROIC Stability | Consistency of return on invested capital |
audit moat |
ROIC Stability | Durability of competitive advantage |
audit moat |
Gross Margin Stability | Pricing power consistency |
audit earning-quality |
Cash Conversion Stability | Earnings quality consistency |
All use the same threshold: < 10% = highly stable.
Why CoV over StdDev?
StdDev measures absolute dispersion — a metric with mean 50% naturally has a larger StdDev than one with mean 10%. CoV normalizes by the mean, enabling fair comparison across different scales. Example: ROE StdDev of 5% is highly stable if mean ROE is 50% (CoV = 10%), but volatile if mean ROE is 10% (CoV = 50%).
Related Metrics
- ROIC Stability — CoV applied to ROIC
- Economic Moat — ROIC − WACC