تدريب Shadowing: Financial Analysis Fundamentals | Course Module - تعلم التحدث بالإنجليزية عبر الفيديو
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Welcome to CFI's Highly Applied and Practical Financial Analysis Fundamentals.
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Financial analysis is really critical to understanding a company's past performance as well as its future prospects.
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The insight you can gain from financial analysis can really help businesses improve their profitability,
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their cash flows, and really their enterprise value.
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In this course, we'll cover a wide range of concepts.
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We'll look at how to undertake a comprehensive financial analysis using a wide range of different types of ratios.
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For example, we'll look at ratios to analyze the income statement and profitability.
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We'll then look at ratios to analyze operating assets and asset utilization.
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We'll also look at ratios that help us better understand a business's capital structure.
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The real intent of this analysis is to make recommendations on how a business can improve its operations,
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its capital structure, and even how it utilizes its assets.
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We'll then explore the importance of trend analysis and benchmarking performance against both a peer group and the industry at large,
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as well as the importance of using data visualization tools to make your analysis really come to life.
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And finally, we'll look at the DuPont Pyramid of Ratios,
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which looks at how we can combine various ratios together to get a more comprehensive view of a business.
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Now, in this course, you're going to watch video lectures, followed by interactive exercises, as well as comprehensive financial analysis case studies,
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where we together are going to calculate ratios for three different retailers in the same industry
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and then benchmark them against each other.
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We'll also include assessments along the way so you can test your knowledge.
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Let's start by outlining a best practice approach to undertaking financial analysis.
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There are four essential steps that can help you gain valuable insight into a business's financial health and performance.
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The first step is to gather multiple years of historic financial statements.
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These statements typically include the income statement, the balance sheet, and the cash flow statement.
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By examining data from multiple years, you can observe patterns and trends, providing a more comprehensive view of a company's financial performance.
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Now, once you've collected the financial statements, it's time to calculate financial ratios.
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Now, financial ratios are powerful tools that allow you to assess a company's performance and compare it to the industry.
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Some commonly used ratios include liquidity ratios, profitability ratios, and solvency ratios.
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By calculating these ratios, you can gain insights into the company's liquidity, profitability, efficiency, and overall financial stability.
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With the calculated financial ratios in hand, it's then crucial to interpret them effectively.
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You want to look for trends and patterns that emerge from the ratios and try to uncover the stories behind the numbers.
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For example, a declining profitability ratio may indicate inefficiencies or increased competition,
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while a constant growth in liquidity ratio may suggest a strong cash position.
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By delving deeper into these ratios, you can better understand the company's financial strengths and weaknesses.
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Finally, to gain a broader perspective on a company's performance, it's important to benchmark the calculated ratios against an appropriate peer group or industry.
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This comparison allows you to evaluate how the company fares in relation to its competitors or the industry as a whole.
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By benchmarking, you can identify areas where the company excels or falls behind, helping you pinpoint opportunities for improvement.
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Remember, financial analysis is also an ongoing process that requires continuous monitoring and adjustment.
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By following these four steps, getting historic financial statements, calculating financial ratios, interpreting the ratios, and then benchmarking against peers,
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you'll be equipped to make informed decisions and uncover valuable insights into a business's financial health.
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jumping into the financial ratios themselves,
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I want to share with you five really important tips that can enhance the quality and the accuracy of your financial analysis.
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First, when conducting financial analysis, I really recommend that you gather a minimum of five years of historic financial performance.
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This time frame allows you to observe longer term trends and better assess the company's stability and consistency over time.
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A longer history of financial data provides a much more comprehensive understanding of a business's performance,
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and it also makes it much easier to identify patterns and make informed decisions.
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Next, to ensure accuracy and maintain transparency in your financial analysis,
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it's crucial to make your calculations in Excel or a spreadsheet software.
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By organizing your calculations in a very systematic manner,
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you can then easily trace the numbers back to the financial statements and ensure the accuracy of your ratio calculations.
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Transparent, visible calculations also enable you to share your analysis with others and facilitate more robust review processes.
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Identifying an appropriate peer group is also a key step in benchmarking your financial analysis.
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However, it's important to note that finding two companies that are perfectly similar is going to be really challenging.
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Instead, try to aim to select companies that operate in the same industry or share similar business models.
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While the peer group might not be a perfect match, it can still provide valuable insights into how the company performs relative to its competitors.
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When working with financial ratios, it's also advisable to keep adjustments to a minimum.
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Adjusting ratios introduces additional complexity and increases the likelihood of errors creeping into your analysis.
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If adjustments are necessary, document them clearly and make sure to review and validate them regularly.
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Minimizing adjustments allows for a more accurate assessment of a company's financial performance relative to others.
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Finally, in academic settings, when calculating financial ratios that involve balance sheet items,
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it's common practice to see balance sheet averages.
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For example, the average of the current year, which is called the closing balance, and the prior year, which is called the opening balance.
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However, in practice, virtually all analysts use current year closing balances rather than average balances.
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We are going to break our ratios into two large categories and four subcategories.
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First, we have performance ratios.
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Performance ratios speak to how a company is doing, what returns and profitability is it delivering to stakeholders,
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and how efficiently it's making use of its assets.
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Financial leverage ratios, in contrast, look at both solvency and liquidity.
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Solvency ratios focus on a company's long-term financial health and its ability to meet long-term obligations,
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while liquidity ratios assess the company's short-term cash position and its ability to handle immediate financial needs and obligations.
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Both solvency and liquidity are important considerations when evaluating a company's financial well-being.
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We are going to start our financial analysis journey by focusing on return and profitability ratios.
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Before diving into our return and profitability ratios, let's do a quick recap of the three financial statements.
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First is the income statement, also referred to as the statement of profit and loss or P&L, which shows what a business has earned as revenues, what it's paid out in expenses,
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and the resultant profit or loss for a given period.
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The balance sheet, also known as the statement of financial position, shows what a business owns, its assets, what it owes,
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its liabilities, and what it's worth, its equity, at a particular point in time.
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The statement of cash flows shows how a business has generated or used cash for operating, investing, or financing activities.
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We're starting with return ratios, and for return ratios, we're going to need both the income statement and the balance sheet,
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while for the profitability ratios that we'll do next, we only are going to need the income statement.
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So let's get started.
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Return ratios are essential in evaluating investment returns.
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Two widely used ratios are return on assets, sometimes referred to simply as ROE, and return on equity, sometimes referred to as simply ROE.
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Now for each of these ratios, we compare the bottom line profit from the income statement.
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That's known as net income, net earnings, or net profit.
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Yes, they're all synonyms for the same thing.
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And we compare that to either total assets and the return on assets ratio, or to total shareholders equity and the return on equity ratio.
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Another important ratio, though less common, is return on invested capital, or ROIC.
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With ROIC, we aim to assess the returns not only to equity investors, but to all capital providers, including debt holders.
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In this case, we calculate a profit figure called net operating profit after tax, commonly referred to as simply NOPAT.
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Now, NOPAT is derived by taking EBIT, or earnings before interest in tax, which is also sometimes referred to as operating profit from the income statement
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and then multiplying it by one minus the tax rate.
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Now let's discuss a fundamental principle
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that should always be at the forefront of your mind
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when conducting financial analysis and that is comparing apples to apples and oranges to oranges.
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This principle emphasizes the importance of ensuring that the metrics being compared are of the same nature and relevance.
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So let's revisit the return on equity ratio.
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Since the profit that belongs to shareholders is net income, we divide shareholder profit or net income by equity to calculate return on equity.
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This ratio specifically focuses on the returns generated for equity investors.
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Now let's return to ROIC.
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Here we need to incorporate a profit metric that encompasses both shareholders and debt holders.
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Hence, we calculate a profit figure that excludes interest expenses representing the returns to debt holders.
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Okay, let's now calculate some of these ratios in Excel.
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Before we do that, I want to explain the layout of this Excel workbook.
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There's been a lot of intention behind the layout of the workbook so that it's easy to follow, easy to check for errors, and so on.
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So let's look at each sheet.
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This is the completed workbook for one of our companies called Big Retailer.
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We're going to work through a blank copy and calculate the ratios.
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So it's really important to have a cover page that explains what the model does.
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And there are hyperlinks to the various pages in the workbook.
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Our financial statements are on the second tab.
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And we've intentionally kept them all on one sheet.
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And I'll just flag we go to income statement.
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Then we go to the cash flow statement.
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And then we can go down to the balance sheet.
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And then finally, we'll need this.
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There are some extra calculations that come from those three financial statements.
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One is how do we calculate our net operating profit after tax?
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And how do we calculate invested capital?
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As well as how do we calculate something called net assets?
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Next, we have our ratio calculations.
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And this is really critical to make your template easy to follow and check for errors.
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We could have hidden all these calculations.
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So here's our return on equity.
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And we could have, I'm going to just do this right now.
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We could have just done this and put the formulas right in the cell.
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So like in cell 08, we just would link those to the financial statements.
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That's okay, but it's hard to follow and it's harder to find errors.
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So instead, it's really important to show your calculations and break things down into steps.
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Whoops.
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Let me go a bit more.
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So here we have the net income number.
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We can make sure they're matching along the way, and it allows us to follow through to the calculation.
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If we want to make it look pretty later, again, we can always hide rows or columns as I was just doing.
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Two of the output sheets are something called a three-step DuPont pyramid and a five-step DuPont pyramid.
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And I'm just going to zoom in.
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You want to be thinking about the layout.
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This is where a learner or reader may go immediately.
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So let me just zoom in and I'll zoom in a bit more.
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and you can see we have it color-coded so
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that we can look for trends and we'll explain more as we go through the course what this DuPont pyramid is about,
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but it's an output sheet that is driven by our racial calculation sheet.
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So you always want to have your input separated from your processing calculations, which is our ratio calculation sheet, from your outputs.
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In this case, we have two output sheets, one called a three-step DuPont pyramid and one of five-step.
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We have been using CFI's best practice modeling guidelines throughout this workbook.
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So just another thing to note, if you're new to CFI.
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Blue is for inputs and black is for where you're linking it to another cell.
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So our inputs are in blue and anything in black means that it's linked to another cell.
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Okay, next thing I just want to flag is we're going to look at three retailers.
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These three retailers, big retailer, mid retailer, and small retailer are actually based on real companies.
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Big retailer is based on a general merchandiser who sells clothes
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and household goods as well as groceries for a very large retailer that operates in 30 plus countries.
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Our mid retailer is in the same space general merchandising with groceries
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but only operates in about 10 different countries
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and our small retailer does the same thing as the other two but only operates in one country.
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I'm going to demo first always by going to big retailer.
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Then I'm going to give you the option to have a second go at mid retailer.
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And then we will test your knowledge with small retailer.
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Now, if you already figured it out with big retailer,
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please feel free to skip the mid retailer activity and go right to the small retailer.
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You'll see what I mean as we do this first section.
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Okay, let's get started.
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Continue learning.
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Join CFI today.
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