# Cluster Analysis with K-Mean versus K-Medoid in Financial Performance Evaluation
## 3 Materials and Methods
### Financial Performance Variables  
Starting from the fact that we have analyzed the financial performance of companies which are very different in terms of size, sales and number of employees, we only worked with relative indicators for group breakdown. To evaluate the financial performance, we chose to analyze only relative financial ratios. So, as grouping criteria we chose the most common profitability ratios: ROS--Return on Sales (for evaluating cost management), ROA--Return on Assets (for assets efficiency) and ROE--Return on Equity (for efficiency of invested resources) [39; 40]. These were used to evaluate the financial performance of the companies. These three ratios are calculated based on the formulas included in Table 3. All analyzed variables are numerical (percent). [PERSON] et al. [40] considered that the ROA indicator, which reflects the profitability of using assets, should be at least 5% in every case. Regarding ROE, which is the most important indicator for investors and which reflects how effectively a company's management uses investors' money, most professional investors are looking for investments that have a return over 15% [40]. [PERSON] [41] conducted an international comparison of companies from three countries using ROS, ROA, ROE and other indicators. The average values determined in his study for ROS, ROA and ROE in three European countries (Italy, Sweden and Switzerland) for three activity sectors (manufacturing, construction and other services, and professional activities) are illustrated in Table 3. [PERSON] et al. [42] analyzed the profitability of 58 listed companies in Vietnam, also based on ROS, ROA and ROE financial indicators, and the mean values for those companies were 90% for ROS, 1.50% for ROA and 3.94% for ROE. For the top 10 retailers in the word, Deloitte [43] synthesized and analyzed performance indicators, of which, for ROA, the following values were recorded: Walmart Inc.--6.4%, Amazon.com Inc.--5.1%, Costco Wholesale Corporation--8.2%, The Kroger Co.--3.3%, Walgreens Boots Alliance, Inc.--5.9%, The Home Depot, Inc.--21.9%, Tesco PLC--1.9%. \begin{table}
\begin{tabular}{c c c c c c c c} \hline \hline \multirow{2}{*}{**Variables**} & \multicolumn{4}{c}{**Hungarian Companies Sample (N = 211)**} & \multicolumn{4}{c}{**Romanian Companies Sample (N = 690)**} \\ \cline{2-9}  & **Minimum** & **Maximum** & **Mean** & **Std. Deviation** & **Minimum** & **Maximum** & **Mean** & **Std. Deviation** \\ \hline ROS & \(-\)68.37 & 305.26 & 0.53 & 23.92 & \(-\)34997.44 & 220.91 & \(-\)65.48 & 1333.48 \\ ROA & \(-\)657.22 & 640.85 & \(-\)5.72 & 77.26 & \(-\)4979.95 & 30459.91 & \(-\)9.00 & 1208.53 \\ ROE & \(-\)18442.93 & 529.92 & \(-\)134.35 & 1297.74 & \(-\)11850.59 & 14922.08 & \(-\)11.51 & 917.09 \\ \hline \hline \end{tabular} Note: ROS—Return on Sales (%); ROA—Return on Assets (%); ROE—Return on Equity (%). Source: Based on own calculations.  
\end{table} 
Table 2: Descriptive statistics of samples. \begin{table}
\begin{tabular}{c c c c c c c} \hline \hline \multirow{2}{*}{**Indicators**} & \multirow{2}{*}{**Formula**} & \multicolumn{4}{c}{**Indicators (Mean Values) 1[41]**} & \multirow{2}{*}{**Recommended Values**} \\ \cline{3-4} \cline{6-7}  & & **Italy** & **Sweden** & **Switzerland** & \\ \hline \multirow{2}{*}{ROS—Return on Sales} & _Net Income_ & \multirow{2}{*}{\(\times\) 100} & \multirow{2}{*}{5.43\%} & \multirow{2}{*}{5.92\%} & \multirow{2}{*}{6.14\%} & \multirow{2}{*}{Positive value; ROS \textgreater{} 5\%} \\ \cline{3-4} \cline{6-7}  & _Total Sales_ & & & & & \\ \cline{3-4} \cline{6-7}  & _Net Income_ & & & & & \\ \cline{3-4} \cline{6-7} ROA—Return on Assets & _Total Assets_ & & & & & \\ \cline{3-4} \cline{6-7} ROE—Return on Equity & _Net Income_ & & & & & \\ \cline{3-4} \cline{6-7}  & _Total Equity_ & & & & & \\ \hline \hline \end{tabular} Note: 1 The average values for ROS, ROA, ROE of companies in Italy, Sweden and Switzerland for three activity sectors (manufacturing construction and other services, professional activities) based on [41].  
\end{table}