Interfacial strength distribution and thermal residual stresses in multi-layered or compositionally graded NiCrAlY/ZrO2 coatings are analyzed. These coatings are fabricated by detonation gun spraying using mechanically alloyed, plasma-spheroidized composite powders. The problems in design of functionally graded materials (FGMs) are outlined and their modeling approaches are reviewed. Due to the concentrational or structural gradients in FGMs, the normal approximations and models, used for traditional composites, are not directly applicable to graded materials. The goal is to show the efficiency of the simplest models to provide the most accurate estimates of the properties and even to make simple elasto-plastic analysis of FGM components without vast computations by finite element methods with an arbitrary non-linear distribution of phases and corresponding proper-ties is presented. Results showed that bonding strengths increased gradually with increase of the composition of metals in the FGM coatings. The FGM coating was more stable on the mechanical properties than normal duplex composites. And, the maximum compressive radial stress is found to be at or near the surface of the specimen where surface cracking may be generated. The maximum axial stress is at the edge of the specimen where spallation may occur. The maximum shear stress is also at or close to the edge.