This study explores the relationship between working capital management and profitability for a sample of 323 manufacturing firms listed on Karachi Stock Exchange over a 6 year period that is from 2006 to 2011. The results of this study show that firms should minimize the accounts collection period, inventory conversion period, accounts payable period (components of working capital management) and cash conversion cycle to a reasonable minimum to be profitable. The study finds a positive relationship between the liquidity and profitability which suggests that Pakistani firms hold low level of liquidity and follow aggressive working capital management strategy. Moreover, the results also suggest that financial and macroeconomic conditions of Pakistan measured by GDP growth, inflation and exchange rate have a significant effect on the working capital management investment decisions. Supervisor:- Dr. Attiya Yasmin Javid