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Forman Inc. and Swoft Inc. both operate within the same industry. Forman's stated strategy is to differentiate its premium products relative to its competitors, while Swoft is a low-cost producer. Given the companies' stated strategies, Forman most likely has:

A higher gross margins relative to Swoft.

An analyst can use the historical trend in a firm's financial ratios as well as an industry relative comparison to assess the firm's business strategy. A firm producing premium products with a strategy of differentiation should have higher gross margins, higher advertising expenses, and higher research and development expenses relative to firms in its industry that pursue a low-cost-of-production strategy.

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