Processors
The processor is the brains of your home theater system. Processing involves decoding surround formats and digital to analogue conversion and is performed by your receiver, preamp/processor or separate surround processor.
One type of processing is performed by DACs or digital-to-analogue converters. These are chips in your receiver that can take a digital audio signal from toslink (optical) or digital coax inputs and convert it into analogue sound we can hear. Although DACs vary in quality and resolution of sound, the best DACs are found in the most expensive equipment; after that the quality is very similar.
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