We develop a model to simulate firms’ balance sheet, income and cash statements and we use it to study the Portuguese firms’ financial situation in the aftermath of the COVID-19 shock (2020-2023 horizon). After a significant negative shock to firms’ activity in 2020, firms’ aggregate profitability recovers until 2023, when it surpasses the pre-pandemic level. During this period, the firms’ aggregate capital ratio increases marginally while the cash ratio rises significantly. The increase in the dispersion of firms’ financial ratios points to increasing insolvency risks in worst performing firms, particularly for smaller firms and firms in sectors most affected by the pandemic crisis. The proportion of firms with negative equity or insolvent between 2020 and 2023 rises. However, the increase in firms with negative equity is smaller than in the sovereign debt crisis period (2010-2014). The increase is less pronounced when the metrics are weighted by firms’ total assets. These results are robust to numerous changes in model assumptions and parameters.