when used in a title firm is typically associated with businesses that provide professional law and accounting services but the term may be used for a wide variety of businesses including finance consulting marketing and graphic design firms among others 
theory of the firmin microeconomics the theory of the firm attempts to explain why firms exist why they operate and produce as they do and how they are structured the theory of the firm asserts that firms exist to maximize profits however this theory changes as the economic marketplace changes more modern theories would distinguish between firms that work toward long term sustainability and those that aim to produce high levels of profit in a short time firm vs companyalthough they appear synonymous and are often used interchangeably there is a difference between a firm and a company a company can be any trade or business in which goods or services are sold to produce income further it encompasses all business structures such as a sole proprietorship partnership and corporation on the other hand a firm typically excludes the sole proprietorship business it generally refers to a for profit business managed by two or more partners providing professional services such as a law firm in some cases a firm can be a corporation types of firmsa firm s business activities are typically conducted under the firm s name but the degree of legal protection for employees or owners depends on the type of ownership structure under which the firm was created some organization types such as corporations provide more legal protection than others there exists the concept of the mature firm that has been firmly established firms can assume many different types based on their ownership structures 1most firms will not operate as a sole proprietorship as this means the individual is personally liable for faults of the firm 2resources used by firmsthe objective of a firm to is convert inputs into outputs for this reason firms use a variety of resources to generate products services and offerings to clients these resources may include but aren t limited to activities of a firmthe activities of a firm can often be broken down into three categories business operating activities investing activities and financing activities these three categories are listed on a firm s statement of cash flow and are discussed further below the primary activity of a company and the primary section on a statement of cash flow is the operating activities section this section ties to the actual core business of the company these activities include selling products or incurring business expenses most of these activities are related to the income statement as these activities most often relate to a company s day to day operations and income in some cases the operating activities section of a statement of cash flow is negative if the amount is negative that means the company is using spending more cash than it is bringing in specific to business operations this also means the company must rely on the other two sections to ensure enough cashflow is coming into the company to maintain operations a statement of cash flow will not include non cash transactions be mindful that firms may have activity not impacting their bank balance but impacting their net profit investing activities are the long term cashflow activities a company incurs to plan for the future and ensure it has the infrastructure to scale operations examples of investing activities include acquiring equipment constructing office buildings or buying heavy equipment although these activities may not be required for day to day operations investing activities play an integral part in a firm s long term success consider a firm that makes its own goods by investing in a corporate warehouse and robust manufacturing plant the firm is more likely to achieve business operation success the last section of activities of a firm are the financing activities although these are also not usually part of the day to day operations of a firm the financing activities play an important in ensuring the long term financial health of a firm some financing activities are cash inflows while other are cash outflows for example firms may decide to award dividends to investors funded from net income of the firm alternatively firms may borrow money from lenders or issue equity to investors to raise capital to support the day to day operations 