Did you think Toyota (NYSE: TM) would make it through months of expensive recalls and bad publicity with its finances unscathed?

Neither did I. But apparently, we both need to think again.

On Tuesday, Toyota reported borderline surreal results for its full fiscal year, which ended in March. While net revenues fell 7.7%, the company posted a full-year profit of 209 billion yen ($2.26 billion), up from a loss of 437 billion yen ($4.73 billion) in the year prior.

And for the most recent quarter? A quarter that saw sharp sales declines in the U.S. market? A mere 112 billion yen profit, up from a 765.8 billion yen loss in the first quarter of 2009. In dollar terms, that's a $1.2 billion profit, up from a whopping $8.29 billion loss.

All things considered, that's an impressive result. How did Toyota do it? And can the company sustain this pace?

The China syndrome
Toyota's earnings release, which reads like it was translated from Japanese in a hurry, attributes the increase to two factors: "cost reduction efforts" and "the reduction in the fixed costs," without spelling either of those out in detail. (Um, what?) But drilling down into the details, I think the company's trying a little too hard to look modest.

While Toyota's presentation didn't break out China specifically, it's clear that as with rivals Ford (NYSE: F), General Motors, and to a lesser extent Honda (NYSE: HMC), the booming Chinese car market is a key source of strength for Toyota right now. Sales in North America and Europe were down year over year, and overall sales fell, but increases in Japan and Asia made things much better than they could have been. For the quarter, sales rose 49% overall.

Fast forward?
Toyota management's outlook for the upcoming year reflects the fruit of those cost-reduction efforts. The company predicts a 48% increase in net profit, while expecting year-over-year sales to stay essentially flat. Ratcheting down the aggressive incentives in the U.S. will help profitability, and the company predicts a continued recovery in sales here, but that will be largely offset by the end of Japan's government incentives program in September.

That program, which offers incentives for the purchase of fuel-efficient cars and the scrapping of old ones, has been a big boon for Toyota's Prius. How big? The Prius has been Japan's best-selling car for 12 months in a row, and there's still a six-month waiting list to get one. An end to the government's program is likely to put a damper on those sales.

But that's not the only potential cloud on the horizon. The U.S. Department of Transportation launched a new investigation of Toyota on Monday, this time focusing on possible delays by the company in reporting steering problems on 4Runner and T100 trucks in 2004 and 2005. While additional fines are unlikely to significantly affect Toyota's financials, an investigation that reignites U.S. public and Congressional ire could once again send Toyota's North American sales into a tailspin.

And while I'll leave the "are-bubbles-brewing-in-China?" debate to my fellow Fools, a list of potential headwinds for Toyota wouldn't be complete without a wary look at the state of the Chinese economy and the sustainability of its growth. A Chinese recession wouldn't be a mortal wound for Toyota, but it would put a damper on its growth hopes -- and that wouldn't help management recover its bonuses.

Wait. Management lost its bonuses?
Yes indeed. In an intriguing move, Toyota has suspended bonuses for many senior managers, and it's asking directors to return some of their compensation. According to CEO Akio Toyoda, as quoted in The Nikkei, this is part of the company's effort "to show our firm, renewed resolve to improve quality." It's certainly an impressive display of seriousness, but only time will tell if the new and more humble Toyota is back on track.

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