After notifying the SEC it would not file its annual report on time Napco Security Technologies (NSSC), a manufacturer of electronic security products, revealed it had misstated its financials in each of the previous three quarters. The company simply did not accurately account for the substantial fluctuations in material costs brought about by recent inflation.

The error resulted in Napco significantly understating cost of goods sold (COGS) and significantly overstating its profitability. While it did not make it easy for investors to quantify, Napco’s restated financials reveal it:

—Overstated operating income $1.4 million, or 13.3% in the quarter ended March 31, 2023
—Overstated operating income $5.1 million, or 118.6% in the quarter ended December 31, 2022
—Overstated operating income $3.6 million, or 100% in the quarter ended September 30, 2022

It’s not the first time Napco has recently fumbled its inventory accounting.

In May 2022, Napco botched the calculation for its inventory obsolescence reserve. As a result, the company restated its financials for the previous three years (2021, 2020, and 2019).