How can z80 uses a 4-bit ALU and return results in a single clock cycle?
The instruction actually ends at the end of T2 of the M1 cycle that reads the next instruction, as explained at z80.info



So, an instruction such as: SUB r can be broken down like this:

M1 / T1
M1 / T2 : read opcode
M1 / T3 : opcode is decoded as SUB r. A is loaded into op1 latch
M1 / T4 : r is loaded into op2 latch
------------
M1 / T1 : low nibble of substraction is calculated and stored in result low latch
M1 / T2 : high nibble of substraction is calculated and written to register file,
          result low latch is written to register file, 
          next opcode is read from memory




This overlapping scheme is only used if the operation writes to a register. If it writes to memory, no overlapping can be happened because that would collide with the M1 cycle trying to read an opcode.

Another example: INC HL. This increments a 16 bit register, so the 4-bit ALU must be used four times. INC HL has one M1 cycle that lasts 6 clock cycles. Its breakdown is this (the number of clock cycles for every machine cycle is taken from the Mostek MK3880 Z80 Technical Manual):

M1 / T1 :
M1 / T2 : read opcode
M1 / T3 : opcode is decoded as INC HL
M1 / T4 : L is loaded into op1 latch
M1 / T5 : low nibble of L is incremented and stored into result low latch
M1 / T6 : low nibble of H is loaded into op1 low latch,
          high nibble of L is incremented and written back to register file
------------
M1 / T1 : high nibble of H is loaded into op1 high latch,
          result low latch (new value of low nibble of L) is 
                               written back to register file
M1 / T2 : high nibble of H is incremented and written back to register file,
          read next opcode, etc...


ADD HL,DE : it lasts 11 clock cycles with the following breakdown: 4+4+3

M1 / T1 :
M1 / T2 : read opcode
M1 / T3 : opcode is decoded as ADD HL,DE
M1 / T4 : L is loaded into op1 latch
------------
M2 / T1 : E is loaded into op2 latch
M2 / T2 : low nibble of L+E is calculated and stored into result low latch
M2 / T3 : high nibble of L+E is calculated and written back to register file,
          low nibble is also written to register file
M2 / T4 : H is loaded into op1 latch
------------
M3 / T1 : D is loaded into op2 latch
M3 / T2 : low nibble of H+D is calculated and stored into result low latch
M3 / T3 : high nibble of H+D is calculated and written back to register file,
          low nibble is also written to register file