People's Electric Company omitted all its preferred stock dividends indefinitely in an effort to improve liquidity.All of the company's cumulative preferred stock was affected.According to the Wall Street Journal,"Some interpreted the drastic action as a requisite for the cash-strapped utility to secure a new credit agreement....If the credit agreement falls through,the omission of preferred-stock dividends would suggest People's Electric is perilously close to filing for bankruptcy." What is cumulative preferred stock? Why is the omission of dividends on those shares a drastic action? If new bank financing is not obtained,why would the company have to consider declaring bankruptcy?

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The Answer of People's Electric Company omitted all its preferred stock dividends indefinitely in an effort to improve liquidity.All of the company's cumulative preferred stock was affected.According to the Wall Street Journal,"Some interpreted the drastic action as a requisite for the cash-strapped utility to secure a new credit agreement....If the credit agreement falls through,the omission of preferred-stock dividends would suggest People's Electric is perilously close to filing for bankruptcy." What is cumulative preferred stock? Why is the omission of dividends on those shares a drastic action? If new bank financing is not obtained,why would the company have to consider declaring bankruptcy?

People's Electric Company Omitted All Its Preferred Stock Dividends Indefinitely