Abstract
In every firm financial decision related to assets plays vital role in business. The optimum proportion of debt and equity is a challenge for the manager dealing with financial matters of the firm. This study aims to investigate the relationship between capital structure and profitability of listed pharmaceutical companies in Pakistan. The study spans over ten years by employing secondary data. The indicators of profitability in this study are return on assets (ROA) and return on equity (ROE) respectively. Simultaneously the indicators of capital structure are debt to equity ratio (DTE), long term debt to total asset (LDTA) and equity to fixed assets (ETFA) respectively. Furthermore the control variable is size of the firm (SZ). Results of the study show the relationship between profitability and capital structure is negatively significant suggesting established pecking order theory.