You are estimating working capital to arrive at the free cash flows of the business.

Only assets that are used in the operations of the business, “working”, must be considered. Assets on hold, not being used, etc. are excluded. 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 is considered part of current assets.

However, cash and cash equivalents more than the quantities required in the operations of the business is considered as excess cash.