Usefulness of K-means method in classification of companies according to their financial situation

Market situation and business environment of construction companies influence signifi-cantly decisions made by this group of entities. These decisions are reflected in financial state-ments later on. The evaluation of financial condition which aims at diagnosing corporate crisis must not disregard the market situation. Based on this assumption, a classification of publicly quoted construction companies using k-means method was conducted. This procedure made it possible to divide the examined sample into five groups of companies characterized by the best, good, acceptable, weak and the poorest financial condition. The application of the aforemen-tioned algorithm was also helpful in determining the levels of financial ratios typical of each group. This kind of analytical approach is useful especially for investors since it informs them how particular companies perform in comparison to other competitors.