Current assets are cash and other assets used in the operations of a business that are expected to be converted into cash within a 12 month period. Examples of current assets include accounts receivable, inventories, etc. Cash and cash equivalents that are required for the smooth functioning of the business are considered part of current assets.
You are estimating working capital to arrive at the free cash flows of the business. Therefore, only the portion of cash and cash equivalents required in the operations of the business should be considered in computing working capital.
Any cash and cash equivalents in excess of the quantities required in the operations of the business should be considered as excess cash and treated accordingly (see the question on treating excess cash).