Objective: The profitability of the companies and factors affecting it is an issue of interest in financial and accounting research. The purpose of this study is to investigate the effect of agency costs and management ability on the profitability of companies, and the way agency costs affect profitability by emphasizing the role of management ability. Methods: Data of 100 companies accepted in Tehran Stock Exchange was collected during the years 2012 to 2018.  In order to measure profitability and agency costs, the ratio of return on assets and inverse of assets utilization ratio were used respectively. The management ability was measured using the two-stage method of Demerjian et al (2012). Data analysis was performed using Data Envelopment Analysis and EViews10 software. Results: The results show that the index of agency costs has a negative and significant effect on the profitability index. According to the GMM Panel (dynamic model), management ability also has a positive and significant effect on future profitability. On the other hand, the managerial ability moderates the impact of agency costs on profitability by reducing its negative impact on the profitability index. Conclusion: The results indicate that managers with high abilities can better align their interests with those of shareholders and the agency conflicts such as moral hazard, earnings management, time horizon difference and the tendency to maintain profit inside the company, occur in companies with such managers less.