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Can anybody explain me what are dashboards and how they are used in Salesforce. Are dashboards and reports the same? Is there any relation between them.

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A dashboard is the graphical representation of the data generated by a report (or multiple reports) at certain point in time. So it's a snapshot of data, to obtain the latest data you need to refresh them either manually or in a scheduled manner.

You can learn more about them here: http://www.salesforce.com/us/developer/docs/workbook_analytics/workbook_analytics.pdf

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