Yes, the operating income and net income reported on the income statement in the annual report are based on GAAP.
Companies are allowed to report adjusted (non-GAAP) amounts in their annual reports. However, the adjusted amounts must be labeled as non-GAAP and a reconciliation to the GAAP amounts must be provided. Adjusted (non-GAAP) amounts are often reported when companies feel that GAAP reporting does not accurately reflect their operations, as was the case for PayPal (PYPL).
Because the adjusted (non-GAAP) amounts are higher than the GAAP amounts, return on total assets, return on stockholders’ equity, and earnings per share will be higher.
Whether adjusted (non-GAAP) amounts provide better information than GAAP amounts is an area of current research. One study2 concluded that GAAP earnings are more useful than adjusted earnings that exclude expenses related to stock options. However, it is still uncertain whether adjusted (non-GAAP) amounts, combined with GAAP amounts, provide more useful information than the GAAP amounts alone.