Brian Feroldi
I demystify the stock market | Author, Speaker, Creator | 100,000+ investors read my free newsletter (see link)
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How to analyze stocksUse this 16-step framework:1: Industry- Is the industry attractive?- Is the market growing?- Is the industry highly competitive?2. Business Model:- How does the company make money?- Does the business interest me?- Is there recurring revenue?3. Historical Growth:- How fast is revenue growing?- How fast are earnings growing?- What is the source of growth?4. Historical Value Creation:- Has it created shareholder value?- What are the returns since IPO?- Is it returning capital to shareholders?5. Moat:- What differentiates the company?- What is the source of moat?- Does the company have pricing power?6. Capital Intensity:- How much capital is needed to operate?- Is the company investing heavily?- Are capital expenditures high or low?7: Profitability- Is the company producing earnings?- Is the company producing free cash flow?- Are the margins high and stable?8. Balance Sheet:- Is the balance sheet strong?- Does the company have a lot of debt?- Does the company have a lot of goodwill?9. Capital Return:- Does the company pay a dividend?-Did the company buy back stock?- Is the capital return program creating value?10. Management:- Does management own stock? How much?- Do they consider all stakeholders?- Does management have soul in the game?11: Capital Allocation- What are the returns on capital?- Do they exceed the cost of capital?- Are returns on capital stable?12: Stock-Based Compensation- What is the SBC policy?- What is the dilution rate?- What metrics trigger SBC payments?13: Outlook:- Does the company issue guidance?- What is the projected growth rate?- Is the growth rate achievable?14: Optionality- Does the company create new products?- Does the pipeline look strong?- Have new products increased sales?15. Risks:- What are the main risks for the company?- Is there any concentration issues?- Is it dependent on market prices?16. Valuation:- Which valuation method is most useful?- What price would you currently pay?- Is the company undervalued or overvalued?***๐ If you enjoyed this post, hit the โLikeโ button to show your support.Want to master the basics of accounting? Check out my free email course.Get started here (it's free) โ https://lnkd.in/eKbRV7g6
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Savvy Trader, Inc.
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I particularly appreciate the emphasis on management's commitment, as reflected in their stock ownership and consideration of all stakeholders. Thanks for sharing these insightful steps!
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Bojan Radojicic
Finance Modeling Coach. Helping Finance Pros Make More Money with Impactful Finance Models & Trainings.
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I like to see is the company undervalued, if yes its good candidate for investing under above conditions. After, 17 years of work in finance, I will start with investing in 2024, your content will be game changer for me :)
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Alan S. Michaels
Director of Industry Research @ Industry Knowledge Graph LLC | MBA Visit IndustryKG.com
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Excellent post, especially insightful by listing as the FIRST bullet point in the FIRST section: "Is the Industry Attractive?"We define over 24,000 industries in the global economy and compute the industry attractiveness for each, yet - it's rarely the industry data people ask about (which is almost always about competitors).
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Ryan Silk
Leadership | Supply Chain
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I would also add in the option skew and volatility smile. This adds an informative layer of data to visualise the outlook of the options markets (if you believe in the efficient market hypothesis). Love the fact you've highlighted the importance of a strong management team - many people undervalue this!
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Oveis Dehghani
Financial Risk Analyst | Accountant and Controller
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Thank you for sharing this comprehensive framework! While this breakdown is incredibly insightful, I often rely on audited financial statements to gather in-depth, verified information. Nonetheless, this 16-step analysis is an excellent guideline for a holistic understanding of stock evaluation. ๐
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Dave Ahern
Helping Simplifying Finance | 17k+investors read our free Nuggets (see link)
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Fantastic outline to start asking questions as part of your research.
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Bojan Radojicic
Finance Modeling Coach. Helping Finance Pros Make More Money with Impactful Finance Models & Trainings.
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Branko Skokovic
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Brian D. Evans
Inc. 500 Entrepreneur. 40 Under 40. Investor in Web3, Crypto, Blockchain, AI, Gaming.
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This 16-step framework offers a comprehensive approach to stock analysis for informed investment decisions. Fantastic post!
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Saeed Noroozi
Chairman Of The Board at Offshore Energy Development Company
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Thanks for sharing ๐
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Nikhil Borole
2 Million+ Content Views || Test Engineer || Inbound Outbound Marketing || Manual Testing || API Testing || SDLC || STLC || Bug Report || Jira || Funtional Testing
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Thanks for sharing this comprehensive framework for analyzing stocks, Brian! Your 16-step approach provides a solid foundation for thorough and informed investment decisions. Brian Feroldi#StockAnalysis
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Brian Feroldi
I demystify the stock market | Author, Speaker, Creator | 100,000+ investors read my free newsletter (see link)
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The ABCs of Accounting ๐ง๐ซA Quick Reference Guide of Accounting Terms.โข Assetsโข Balance Sheetโข Cash Flowโข Debtโข Equityโข Financial Statementsโข Gross Marginโข Historical Costโข Income Statementโข Journal Entriesโข Key Performance Indicatorโข Liquidityโข Market Valueโข Net Incomeโข Owners Equityโข Operating Expensesโข Profitโข Quarterly Reportsโข Revenueโข Solvencyโข Taxesโข Unearned Revenueโข Valuationโข Working Capitalโข XIRRโข Yieldโข Z-ScoreHow many of these terms do you know?Follow Brian Feroldi for more content like this.***P.S. Want to master the basics of accounting (for free)?I created a 5-day, email-based course that explains the Balance Sheet, Income Statement, and Cash Flow Statement in plain English.Check it out here (It's free) โ https://lnkd.in/e9rrxPt3If you found this post useful, please repost โป๏ธ to share with your audience.
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Brian Feroldi
I demystify the stock market | Author, Speaker, Creator | 100,000+ investors read my free newsletter (see link)
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10 Growth KPIs What gets measured gets managed.Here's a list of growth KPIs every company & investor should know:๐ Revenue Growthโข Measures the increase in revenue over a specific period, typically expressed as a percentage.โ Formula: ((Current Revenue - Previous Revenue) / Previous Revenue) x 100๐ฐ Monthly Recurring Revenue (MRR)โข Tracks the predictable and recurring revenue generated.โ Formula: Average Revenue Per User x Number of Customersโ Gross Margin โขThe percentage of revenue remaining after deducting the cost of goods sold.โ Formula: (Revenue - Cost of Goods Sold) / Revenue)ร100๐ค Customer Acquisition Cost (CAC)โข Calculates how much it costs to acquire each new customer.โ Formula: Sales and Marketing Expense / Number of New Customers Acquired ๐ต Customer Lifetime Value (CLV)โข Assesses the total value a customer brings to the company throughout their lifetime.โ Formula: Average Purchase Value x Average Purchase Frequency ร Average Customer Lifespan๐ค Customer Retention Rate (CRR)โข The percentage of customers who continue to use your product or service over time.โ Formula: (Number of Customers at the End of the Period - Number of New Customers Acquired) / Number of Customers at the Start of the Period) x 100โคต๏ธ Churn Rateโข The rate at which customers stop using or subscribing to your product or service.โ Formula: (Number of Customers at the Start of the Period - Number of Customers at the End of the Period) / Number of Customers at the Start of the Period๐ Customer Satisfaction Score (CSAT)โข The level of satisfaction that customers have with a company's product, service, or overall experience.โ Formula: (Number of Satisfied Responses / Total Responses) ร 100๐ฌ Net Promoter Score (NPS)โข Measures how likely customers are to recommend a company's product or service to others.โ Formula: (% of Promoters) - (% of Detractors)๐ Market Shareโข A company's portion of the total market in terms of revenue.โ Formula: (Your Company's Sales / Total Market Sales) ร 100Which growth metrics do you value most?Follow Brian Feroldi for more content like this.***P.S. Want to master the basics of accounting (for free)?I created a 5-day, email-based course that explains the Balance Sheet, Income Statement, and Cash Flow Statement in plain English.Check it out here (It's free) โ https://lnkd.in/e9rrxPt3If you found this post useful, please repost โป๏ธ to share with your audience.
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Brian Feroldi
I demystify the stock market | Author, Speaker, Creator | 100,000+ investors read my free newsletter (see link)
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๐๐ฉ๐ ๐๐ ๐๐ฅ๐ฅ ๐๐ ๐ก๐ฃ๐ฉ ๐๐ ๐ฃ๐ฃWhat's the difference?Here's a simplified overview:๐ญ. ๐๐ฐ๐ผ๐ป๐ผ๐บ๐ถ๐ฐ ๐ฉ๐ฎ๐น๐๐ฒ ๐๐ฑ๐ฑ๐ฒ๐ฑ (๐๐ฉ๐):โข ๐ช๐ต๐ฎ๐ ๐ถ๐ ๐ถ๐: Evaluates company's financial performance by subtracting the cost of capital from net operating profit after tax.โข ๐ฃ๐ฟ๐ผ๐: Promotes value creation; encourages efficient capital utilization.โข ๐๐ผ๐ป๐: Complex and requires comprehensive financial details.โข ๐ช๐ต๐ฒ๐ป ๐๐ผ ๐จ๐๐ฒ: Ideal for internal performance reviews and managing based on value.๐ฎ. ๐๐ป๐๐ฒ๐ฟ๐ป๐ฎ๐น ๐ฅ๐ฎ๐๐ฒ ๐ผ๐ณ ๐ฅ๐ฒ๐๐๐ฟ๐ป (๐๐ฅ๐ฅ):โข ๐ช๐ต๐ฎ๐ ๐ถ๐ ๐ถ๐: The rate where the net present value (NPV) of all cash flows is zero.โข ๐ฃ๐ฟ๐ผ๐: Reflects investment efficiency; facilitates comparison with required returns.โข ๐๐ผ๐ป๐: Multiple results for fluctuating cash flows; assumes reinvestment at IRR.โข ๐ช๐ต๐ฒ๐ป ๐๐ผ ๐จ๐๐ฒ: Effective for comparing project profitability; when the capital cost is unknown.๐ฏ. ๐ก๐ฒ๐ ๐ฃ๐ฟ๐ฒ๐๐ฒ๐ป๐ ๐ฉ๐ฎ๐น๐๐ฒ (๐ก๐ฃ๐ฉ):โข ๐ช๐ต๐ฎ๐ ๐ถ๐ ๐ถ๐: Calculates the difference between present values of cash inflows and outflows.โข ๐ฃ๐ฟ๐ผ๐: Acknowledges the time value of money; offers a clear profitability measure.โข ๐๐ผ๐ป๐: Needs precise estimation of future cash flows.โข ๐ช๐ต๐ฒ๐ป ๐๐ผ ๐จ๐๐ฒ: Best for assessing absolute investment value; good for comparing various projects.๐ฐ. ๐ฃ๐ฎ๐๐ฏ๐ฎ๐ฐ๐ธ ๐ฃ๐ฒ๐ฟ๐ถ๐ผ๐ฑ (๐ฃ๐ฃ):โข ๐ช๐ต๐ฎ๐ ๐ถ๐ ๐ถ๐: Time required for an investment to generate cash equal to its cost.โข ๐ฃ๐ฟ๐ผ๐: Straightforward and assesses risk and liquidity.โข ๐๐ผ๐ป๐: Ignores the time value of money; doesnโt evaluate overall profitability.โข ๐ช๐ต๐ฒ๐ป ๐๐ผ ๐จ๐๐ฒ: Great for initial project screening or limited funds; focuses on speed of return.Selecting the right metric is crucial for accurate financial analysis and strategic decision-making.Which method do you prefer?Follow Brian Feroldi for more content like this.***P.S. Want to master the basics of accounting (for free)?I created a 5-day, email-based course that explains the Balance Sheet, Income Statement, and Cash Flow Statement in plain English.Check it out here (It's free) โ https://lnkd.in/e9rrxPt3If you found this post useful, please repost โป๏ธ to share with your audience.
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Brian Feroldi
I demystify the stock market | Author, Speaker, Creator | 100,000+ investors read my free newsletter (see link)
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What are margins?Here's a simple explanation.Margin refers to the percentage difference between the costs and revenue of products or services. It indicates how much profit a company makes on its sales after covering various costs. Higher margins indicate more efficient operations and stronger financial health.Here are the 6 most important margins to know:๐๐ฅ๐ข๐ฆ๐ฆ ๐ ๐๐ฅ๐๐๐กThe percentage of revenue remaining after subtracting the cost of goods sold. It's a measure of production efficiency and pricing strategy.- ๐๐ฎ๐น๐ฐ๐๐น๐ฎ๐๐ถ๐ผ๐ป: (Revenue - COGS) / Revenue๐ข๐ฃ๐๐ฅ๐๐ง๐๐ก๐ ๐ ๐๐ฅ๐๐๐ก (๐๐๐๐ง ๐ ๐๐ฅ๐๐๐ก): The percentage of revenue remaining after subtracting ๐๐ต๐ฒ cost of goods sold and all operating expenses.- ๐๐ฎ๐น๐ฐ๐๐น๐ฎ๐๐ถ๐ผ๐ป: Operating Income / Revenue๐๐๐๐ง๐๐ ๐ ๐๐ฅ๐๐๐ก:Measures earnings before interest, taxes, depreciation, and amortization as a percentage of revenue.- ๐๐ฎ๐น๐ฐ๐๐น๐ฎ๐๐ถ๐ผ๐ป: EBITDA / Revenue ๐ฃ๐ฅ๐๐ง๐๐ซ ๐ ๐๐ฅ๐๐๐ก (๐๐๐ง ๐ ๐๐ฅ๐๐๐ก):The company's profitability before subtracting income taxes.- ๐๐ฎ๐น๐ฐ๐๐น๐ฎ๐๐ถ๐ผ๐ป: Earnings Before Taxes / Revenue๐ก๐๐ง ๐ ๐๐ฅ๐๐๐ก (๐ฃ๐ฅ๐ข๐๐๐ง ๐ ๐๐ฅ๐๐๐ก):Measures the percentage of revenue that becomes net income after subtracting all expenses.- ๐๐ฎ๐น๐ฐ๐๐น๐ฎ๐๐ถ๐ผ๐ป: Net Income / RevenueUnderstanding margins is crucial for investors, managers, and stakeholders to evaluate a company's operational efficiency. Each margin tells a different story, from production costs to overall profitability, providing a comprehensive picture of the company's financial performance.10 Benefits of Using Margins- Trend Analysis- Pricing Strategy- Risk Management- Financial Planning- Cost Management- Investment Decisions- Comparative Analysis- Operational Efficiency- Performance Incentives- Profitability AssessmentFollow Brian Feroldi for more content like this.***P.S. Want to master the basics of accounting (for free)?I created a 5-day, email-based course that explains the Balance Sheet, Income Statement, and Cash Flow Statement in plain English.Check it out here (It's free) โ https://lnkd.in/e9rrxPt3If you found this post useful, please repost โป๏ธ to share with your audience.
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Brian Feroldi
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What is Working Capital?Here's a simple way to understand this confusing finance term...Working capital -- aka Net Working Capital -- is the difference between a company's current assets (expected to be used/consumed/converted into cash <1 year) and current liabilities (debts that are expected to be paid off in <1 year).๐กWhy is working capital important?Working Capital is a quick way to assess a company's liquidity, which is its ability to meet its short-term obligations.It serves as an indicator of a company's financial health.If working capital is positive, it indicates that a company has sufficient resources to cover its short-term financial needs.If working capital is negative, it indicates that a company may face financial difficulties.There are three ways to calculate working capital:1๏ธโฃ THE SIMPLE METHODCurrent Assets - Current LiabilitiesThis is the most common method and easiest to calculate.2๏ธโฃ THE NARROW METHOD(Current Assets - Cash) - (Current Liabilities - Debt)This method excludes cash & debt, which can be useful for comparing companies with different capital structures.3๏ธโฃ THE SPECIFIC METHOD:Accounts Receivable + Inventory - Accounts Payable:This method focuses on the cash conversion cycle of a business, which is the time it takes to convert inventory into cash.Was this helpful? Let me know in the comments section below!Follow Brian Feroldi for more content like this.***P.S. Want to master the basics of accounting (for free)?I created a 5-day, email-based course that explains the Balance Sheet, Income Statement, and Cash Flow Statement in plain English.Check it out here (It's free) โ https://lnkd.in/e9rrxPt3If you found this post useful, please repost โป๏ธ to share with your audience.
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Brian Feroldi
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How to analyze a Cash Flow Statement in <2 minutes:Understand these cash flow formulas.The Cash Flow Statement shows a company's profitability at multiple levels over a period of time using cash accounting.3 Main sections:๐ฐ OPERATING ACTIVITIESShows cash inflows & outflows from normal operations๐ฐ INVESTING ACTIVITIESShows cash outflows from capital expansion & long-term investments๐ฐ FINANCING ACTIVITIESShows cash changes to the companyโs capital structure6 Cash Flow Ratios to watch๐ณ LIQUIDITY RATIOSCash Ratio = Cash Balance โ Current LiabilitiesCurrent Ratio = Current Assets โ Current Liabilitiesโฑ COVERAGE RATIOSCash Coverage Ratio = Cash Balance โ Interest ExpenseDebt To OCF = Total Debtโ Operating Cash Flowโ VALUATION RATIOSPrice to CFFO = Share Price โ Cash Flow From Operations Per SharePrice to FCF = Share Price โ Free Cash Flow Per ShareWhich ratio do you think is the most useful? Let me know in the comments below!Follow Brian Feroldi for more content like this.***P.S. Want to master the basics of accounting (for free)?I created a 5-day, email-based course that explains the Balance Sheet, Income Statement, and Cash Flow Statement in plain English.Check it out here (It's free) โ https://lnkd.in/eKbRV7g6If you found this post useful, please repost โป๏ธ to share with your audience.
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Brian Feroldi
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6 Amortization Methods, Explained ๐AMORTIZATION ๐ ๐ฅ๏ธ ๐An accounting method used to allocate the cost of intangible assets (such as patents, trademarks, and software) over their useful lives. It represents the systematic reduction in the value of an asset due to factors like expiry, obsolescence, or legal limits.Amortization happens to INTANGIBLE Assets (you CANNOT touch them)Examples:โ Patent ๐โ Software ๐ฅ๏ธโ Trademarks ๐6 AMORTIZATION METHODS1๏ธโฃ STRAIGHT-LINEThe most common and easiest method to calculate amortization. Divide the cost of an intangible asset by the useful life of the asset (in years).๐ FORMULA: Cost / Useful Life2๏ธโฃ DECLINING BALANCEUsed for assets that lose value quickly. Multiply the book value at the beginning of the period by the amortization rate.๐ FORMULA: Opening book value x (100% / Useful Life of asset)3๏ธโฃ UNITS OF PRODUCTION METHODTailored for assets whose utility is more related to production than time, like copyrights for books based on sales.๐ FORMULA: (Total Number of Units / Total Production ) x Cost of Intangible Asset4๏ธโฃ SUM OF THE YEARS' DIGITSAn accelerated amortization method where the expense is higher in the early years. Multiply the cost by the fraction of remaining life over sum of the years' digits.๐ FORMULA: Cost x (Remaining Life / Sum of the Years' Digits)5๏ธโฃ IMPAIRMENT ONLYThere is no systematic amortization, only impairment losses when the asset's fair value drops below carrying value.๐ FORMULA: Carrying Amount - Recoverable Amount6๏ธโฃ REVENUE BASEDAmortization is based on the revenue generated or performance metrics.๐ FORMULA: (Revenue for the Period / Total Revenue ) x Cost of Intangible AssetFollow Brian Feroldi for more content like this.***P.S. Want to master the basics of accounting (for free)?I created a 5-day, email-based course that explains the Balance Sheet, Income Statement, and Cash Flow Statement in plain English.Check it out here (It's free) โ https://lnkd.in/eKbRV7g6If you found this post useful, please repost โป๏ธ to share with your audience.
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Brian Feroldi
I demystify the stock market | Author, Speaker, Creator | 100,000+ investors read my free newsletter (see link)
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FCF vs EBITDA, Visualized ๐ผ๏ธAccounting is the language of business.Today, let's demystify two essential accounting terms: FCF & EBITDA.๐ฐ FCFStands for Free Cash FlowIt is the cash a company generates after accounting for cash outflows to support operations and maintain its capital assets.๐ฐ EBITDAStands for: Earnings Before Interest, Taxes, Depreciation, and AmortizationIt is often used to evaluate a company's operating performance. It focuses on the business's core operations, excluding the effects of financing and accounting decisions.๐กPURPOSEโ FCF: reveals how much cash is available for dividends, debt repayment, and reinvestment after covering all expenses, including CapEx.โ EBITDA: provides a view of a company's operational efficiency by excluding non-operating expenses.๐ข USAGEโ FCF is crucial for assessing a company's ability to generate cash and fund growth, repurchase stock, pay dividends, and reduce debt.โ EBITDA is often used by investors to compare companies within the same industry without the effects of financing and accounting decisions.๐ข CALCULATIONFCFโก Cash Flow From Operations - Capital ExpendituresEBITDAโก Operating Income + Depreciation + AmortizationEach metric serves a unique purpose in financial analysis, and each offers valuable insights for investors, managers, and stakeholders.Was this explanation helpful?Let me know in the comments below!Follow Brian Feroldi for more content like this.***P.S. Want to master the basics of accounting (for free)?I created a 5-day, email-based course that explains the Balance Sheet, Income Statement, and Cash Flow Statement in plain English.Check it out here (It's free) โ https://lnkd.in/eKbRV7g6If you found this post useful, please repost โป๏ธ to share with your audience.
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