Profit Volatility Calculator
Measures the variability of profit over time using statistical metrics. Calculates standard deviation, coefficient of variation, confidence intervals, and downside risk to quantify how predictable or volatile the business's earnings are.
Risk - Profit Volatility Calculator.xlsx
Excel (.xlsx) — No macros — Works in Excel, Google Sheets, LibreOffice
What This Spreadsheet Solves
- Profit swings are felt but not measured
- No statistical basis for forecasting profit ranges
- Downside risk (probability of loss) is unquantified
- Investor or lender questions about earnings stability lack data
- Planning uses average profit without accounting for variance
Who This Is For
- CFOs reporting on earnings predictability
- Business owners understanding profit risk
- Investors evaluating the stability of a business
- Financial analysts benchmarking volatility against industry norms
Inputs
- $Monthly Profit (Historical Series)
- #Number of Periods
- %Confidence Level
- $Target Minimum Profit
Outputs
- Average profit per period
- Profit standard deviation
- Coefficient of variation (CV)
- Confidence interval (e.g., 95% range)
- Probability of profit falling below target minimum
How Calculations Work
The calculator takes a historical series of profit figures and computes the mean, standard deviation, and coefficient of variation (standard deviation divided by mean). The confidence interval defines the range within which profit is expected to fall at the specified confidence level, assuming a normal distribution. Downside risk calculates the probability of profit falling below the user-defined minimum using the z-score of the target relative to the mean and standard deviation.
Example Use Case
Scenario: 12 months of profit data ranging from $18,000 to $52,000. Average: $34,500. Target minimum profit: $20,000. Confidence level: 95%.
Result: Standard deviation: $9,800. CV: 28.4% (moderate volatility). 95% confidence interval: $15,292 to $53,708. Probability of profit below $20,000 target: 6.9%. Two of 12 months fell below $20,000 historically, consistent with the modeled probability.
What You Get — 5 Sheets
Technical Details
Frequently Asked Questions
How many periods of data do I need?
At least 12 periods for basic analysis. 24+ periods produce more reliable statistics. Fewer than 8 periods will generate a warning about insufficient data.
What is a good coefficient of variation?
CV below 15% indicates stable profit. 15-30% is moderate. Above 30% is high volatility. Compare against your industry: seasonal businesses naturally have higher CVs.
Does this assume profits are normally distributed?
The default uses a normal distribution. If your profit data is skewed (common for businesses with capped downside), switch to lognormal in CONFIG for better accuracy.
What is downside risk used for?
It quantifies the likelihood of a bad month. Use it for reserve planning (how much buffer for a 95% chance of staying above minimum), loan covenants, or investor communications.
How do I reduce profit volatility?
Common approaches: diversify revenue sources, shift variable costs to fixed (or vice versa for leverage reduction), smooth revenue through contracts or subscriptions, and hedge input cost exposure.
Download Profit Volatility Calculator
Ready to use immediately. Enter your data in the INPUT sheet, see results in OUTPUT.