In this research paper, an attempt has been made to study the effect of working capital on profitability. Study period was of five year from 2013-2014 to 2017-2018. The researcher has conveniently selected five pharmaceutical companies namely Cipla Ltd., Lupin Ltd., Sun Pharma Ltd., Torrent Pharmaceuticals and Dr Reddys Laboratories. In order to examine correlation between working capital management and profitability, Correlation matrix was prepared with the help of SPSS. The result of the correlation shows that three variable of working capital- current ratio, liquidity ratio and inventory turnover ratio have significant correlation with the variables of profitability like RON, ROCE, GPR, NPR and EPS and two variables of working capital debtor turnover ratio and working capital turnover ratio are negatively correlated with profitability variables return on capital employed, return on net-worth, Earning per share, gross profit ratio, net profit ratio and operating profit ratio. In order to examine the effect of working capital, three model of regression -Pooled OLS, Fixed effect and Random effect models were prepared with help of STATA 14.2 version. Pooled OLS and Random effect model have similar result. Therefore, researcher has selected random effect model to examine the robustness with fixed effect model. Current ratio has positive and significant effect on return on capital employed, whereas liquidity ratio has negative and significant effect on return on capital employed. Besides this, inventory turnover ratio has also positive and significant effect on return on capital employed. Other independent variables like debtor turnover ratio and working capital turnover ratio have positive and statistically insignificant effect on return on capital employed.

KEYWORDS:  Working Capital Management, Profitability, Correlation Matrix and Regression.