# Cluster Analysis with K-Mean versus K-Medoid in Financial Performance Evaluation
## 4 Research Results
### Comparative Analysis of Financial Performance Results: K-Mean vs. K-Medoid
\begin{table}
\begin{tabular}{c c c c c c c c c c} \hline \hline  & \multicolumn{4}{c}{**K-Mean**} & \multicolumn{4}{c}{**K-Medoid**} \\ \hline
**Cluster** & **N 1** & **ROS** & **ROA** & **ROE** & **Cluster** & **N 1** & **ROS** & **ROA** & **ROE** \\ \hline
1 & 7 & 2.96 & 2.92 & 167.4 & 1 & 126 & 8.59 & 12.14 & 34.61 \\
2 & 214 & 5.51 & 8.01 & 18.99 & 2 & 85 & 1.94 & 1.95 & 9.48 \\
3 & 3 & 20.82 & 120.44 & \(-\)15.43 & 3 & 10 & 11.15 & 40.67 & \(-\)18.22 \\
4 & 205 & \(-\)7.23 & \(-\)8.41 & \(-\)23.74 & 4 & 19 & 3.55 & 12.93 & \(-\)54.02 \\
5 & 42 & \(-\)3.33 & \(-\)3.14 & \(-\)89.02 & 5 & 26 & \(-\)1.20 & \(-\)0.93 & \(-\)8.68 \\
6 & 80 & \(-\)19.05 & \(-\)61.59 & \(-\)22.85 & 6 & 21 & 0.25 & \(-\)1.44 & \(-\)22.25 \\
7 & 14 & \(-\)98.36 & \(-\)26.08 & \(-\)33.01 & 7 & 26 & \(-\)3.46 & \(-\)12.04 & \(-\)9.95 \\
8 & 12 & \(-\)20.39 & \(-\)48.12 & \(-\)113.77 & 8 & 51 & \(-\)13.40 & \(-\)14.18 & \(-\)22.76 \\
9 & 5 & \(-\)137.43 & \(-\)129.34 & \(-\)27.34 & 9 & 36 & \(-\)28.3 & \(-\)7.45 & \(-\)30.51 \\
10 & 15 & \(-\)23.77 & \(-\)150.96 & \(-\)21.00 & 10 & 22 & \(-\)5.20 & \(-\)6.44 & \(-\)56.67 \\
11 & 4 & \(-\)20.43 & \(-\)201.70 & \(-\)85.19 & 11 & 48 & \(-\)10.29 & \(-\)49.15 & \(-\)18.72 \\
12 & 23 & \(-\)1.83 & \(-\)6.62 & \(-\)204.89 & 12 & 52 & \(-\)54.76 & \(-\)30.63 & \(-\)28.66 \\
13 & 4 & 7.11 & \(-\)2.55 & \(-\)388.49 & 13 & 28 & \(-\)7.58 & \(-\)16.47 & \(-\)99.20 \\
14 & 8 & \(-\)14.57 & \(-\)272.52 & \(-\)22.52 & 14 & 55 & \(-\)31.27 & \(-\)151.30 & \(-\)32.74 \\
15 & 4 & 0.35 & 7.32 & \(-\)453.45 & 15 & 35 & 0.05 & \(-\)4.95 & \(-\)247.36 \\ \hline \hline \end{tabular} Note: 1 Number of companies in cluster. Source: Based on own calculations.  
\end{table} 
Table 7: Average financial indicator values per cluster (%) for Romanian companies. Figure 8: Average financial indicator values per cluster for Romanian companies: (**a**) K-Mean method; (**b**) K-Medoid method. Source: Authors’ own editing based on own calculations. for the groups obtained with the K-Mean method is much larger than in the case of the groups obtained with the K-Medoid method. The financial performance of Romanian companies is much weaker than that of Hungarian companies, with a lot of negative results (negative net profit), directly affecting ROS, ROA and ROE values. Thus, positive financial ratios were obtained by three groups containing about 35% of the analyzed companies in the case of the K-Mean grouping method, and by four groups containing 37.5% of the total companies when using the K-Medoid grouping method. Most companies recorded negative values for the three indicators, which means that the net result is negative, i.e., the activity is not profitable. This phenomenon is repeated every year, a fact which leads to a negative value for the equity of the enterprises. Although there is a legal provision in Romania regarding the increase of equity in case of consecutive losses [66], it seems that this legal provision is not applied by companies. We grouped financial performance in three categories, namely _Good_ (all three financial indicators--ROS, ROA and ROE--are above +5% or more), _Acceptable or Weak_ (the financial ratios are all positive but close to zero) and _Negative_ (all three financial indicators are below zero, i.e., they all have negative values). In this regard, the assessment of the financial performance of Hungarian and Romanian commercial enterprises is included in Table 8 (the proportion of enterprises in different categories). As shown in the previous table, the results for financial performance do differ: for Hungarian companies, when applying the K-Mean method, 68.95% of companies have an acceptable financial performance, while in the case of K-Medoid only 29.47%; for Romanian companies 1.56% of companies have an acceptable financial performance when applying the K-Mean method and 17.81% in the case of K-Medoid.